JetBlue Airways has agreed to acquire rival discount carrier Spirit Airlines, a $3.8 billion combination that would create the nation’s fifth-largest carrier, which executives say will challenge the dominance of the nation’s four largest airlines.
The deal announced Thursday comes one day after Spirit terminated merger talks with Frontier. It is subject to shareholder and regulatory approval.
JetBlue plans to pay $33.50 per share in cash, representing a 37% premium over Spirit stock’s closing price on Wednesday. The deal includes a prepayment of $2.50 once stockholders approve the transaction, plus a “ticking fee” of $0.10 per month starting in January 2023.
If the deal is approved by regulators, it would further consolidate an industry that is led by four dominant airlines: Delta, American, United and Southwest. The four carriers accounted for about 80% of the industry’s revenue before the pandemic.
JetBlue executives argued that allowing their company to swallow up Spirit would provide the heft it needs to successfully compete with larger rivals, a move they say would force them to drop fares. The combined company would command roughly 9% of the commercial airline market, according to JetBlue’s announcement, with a projected $11.9 billion in annual revenue.
“We believe we can uniquely be a solution to the lack of competition in the U.S. airline industry and the continued dominance of the Big Four,” said JetBlue chief executive Robin Hayes, who is to lead the combined company. “By enabling JetBlue to grow faster, we can go head-to-head with the legacies in more places to lower fares and improve service for everyone.”
Spirit president and chief executive Ted Christie also praised the deal.
“We are thrilled to unite with JetBlue through our improved agreement to create the most compelling national low-fare challenger to the dominant U.S. carriers, and we look forward to working with JetBlue to complete the transaction,” he said in a statement.
Passengers won’t see the effects of any deal for some time, with the airlines facing limits on their cooperation until the merger closes. But as airlines struggle with staffing shortages and delays as they try to rebound from the pandemic, a combined Spirit and JetBlue could improve reliability. More than 30% of each airline’s flights were delayed in May, according to the most recent data available, making them among the worst performers in the industry.
The combined airline would have about 1,700 daily flights to more than 125 destinations in 30 countries with a fleet of 458 aircraft, according to the announcement.
With Spirit swallowed by JetBlue, Frontier has made the case it would be positioned to expand as the largest low-fare airline. Spirit on Wednesday terminated merger talks with Frontier, moments before it was expected to announce the results of a shareholder vote.
The Frontier deal was less valuable up front, but analysts said it would likely face an easier path to regulatory approval since the operations of Frontier and Spirit were similar. Spirit’s board had stood by the Frontier proposal, calling JetBlue’s overtures “cynical,” in a May financial disclosure. JetBlue’s leaders shot back, saying Spirit’s board was pursuing an inferior deal and had conflicts of interest.
It had been clear for several weeks that Spirit’s shareholders were unconvinced by Frontier’s offer, and a vote on the merger plan was repeatedly postponed as executives sought to rally support. ISS, an influential advisory firm, urged Spirit’s shareholders to reject the Frontier offer on July 15, calling JetBlue’s proposal superior.
Spirit shares jumped 3.1% as trading opened Thursday, while JetBlue dropped 0.5%.
The transaction is expected to close by the first half of 2024, although the timeline is subject to regulatory and shareholder approval.
Regulatory approval is far from a certainty; the Biden administration has signaled a hard line against corporate consolidation in numerous industries. The Federal Trade Commission has already halted several blockbuster mergers, including Lockheed Martin’s $4.4 billion acquisition of rocket-maker Aerojet Rocketdyne. More recently it sued to block Facebook parent company Meta’s acquisition of a virtual reality company.
The Justice Department has also taken a harder line against consolidation. It joined seven attorneys general in trying to block a seat-sharing partnership between American Airlines and JetBlue, saying the two companies’ collaboration is anti-competitive and would lead to higher ticket prices.
If regulators prevent JetBlue and Spirit from merging, JetBlue has agreed to pay a fee of $70 million to Spirit, along with fees paid to shareholders. The two airlines plan to operate independently until the acquisition is completed.
(c) 2022, The Washington Post · Aaron Gregg, Ian Duncan
