The fate of Spirit Airlines’ merger with fellow budget carrier Frontier Airlines is growing murkier.
Spirit this week delayed its shareholder meeting for a 3rd time, opening the door to more talks from each Frontier and rival suitor JetBlue Airways. The latter two delays each got here just hours before Spirit shareholders were as a result of vote on the Frontier tie-up, a now $2.6 billion cash-and-stock combination after Frontier recently sweetened the offer in an effort to ward off JetBlue’s advances. JetBlue is offering about $3.7 billion in an all-cash takeover.
Ahead of probably the most recently scheduled vote, which was slated for Friday morning, it didn’t appear Spirit had enough votes to get the Frontier deal approved, in response to people acquainted with the matter.
Spirit can be on the hook to pay Frontier a break-up fee of greater than $94 million if it deems JetBlue’s offer superior and scraps its original deal.
“We’re working hard to bring this process to a conclusion while remaining focused on the well-being of our Spirit Family,” Spirit CEO Ted Christie said in a note to employees late Thursday after the vote was postponed yet again. Spirit declined to comment further on Friday.
JetBlue, for its part, cheered the delay. CEO Robin Hayes said in an announcement late Thursday: “We’re encouraged by our discussions with Spirit and are hopeful they now recognize that Spirit shareholders have indicated their clear, overwhelming preference for an agreement with JetBlue.”
Neither JetBlue nor Frontier offered further comment on Friday.
At stake is a likelihood to turn out to be the country’s fifth-largest airline, behind giants American, Delta, United and Southwest. A Spirit-Frontier merger could create a budget airline behemoth, while JetBlue says its buyout offer would “turbocharge” growth on the airline, whose service includes more amenities and Mint business-class on some aircraft.
“Spirit’s board is hell-bent on a Frontier deal. They’ve never wavered,” said Brett Snyder, a former airline manager who now runs the Cranky Flier travel site. “Their challenge is how do they get the votes?”
If the Frontier deal goes to a vote, Spirit shareholders will being deciding on a cash-and-stock deal. Banking stock could mean a future profit for shareholders if the travel rebound boosts the stock price. But they risk the reverse within the event of a recession or travel slowdown, though budget carriers corresponding to Spirit and Frontier are less sensitive to the ups and downs of business travel than larger airlines.
JetBlue’s cash-in-hand offer avoids the gamble.
“With the Frontier deal, you are putting faith in what happens after the merger to make your money. With JetBlue, it’s: Here’s the cash, take the cash, go away,” Snyder said.
JetBlue has repeatedly sweetened its offer for Spirit, including increasing a reverse break-up fee should regulators block the deal. The airline’s persistence has put pressure on Frontier, which recently upped its own offer to match JetBlue’s reverse break-up fee.
Spirit’s board has rejected each of JetBlue’s proposals, arguing a takeover would not pass muster with the Justice Department, which is suing to dam JetBlue’s own regional alliance with American Airlines within the Northeast U.S.
The Biden administration’s Justice Department has vowed to take a tough line against deals that threaten competition, even assuming divestitures. JetBlue, for instance, promised to divest Spirit assets within the Northeast to make its proposed Spirit takeover more palatable.
But that is only a priority if a Frontier deal is dead — and despite the shareholder vote delays, it will not be, in response to Bob Mann, an aviation analyst and former airline executive.
“I see it more of a case of Spirit being just unquestionably careful about listening and reviewing [JetBlue’s offer] they usually may ultimately conclude on their very own it doesn’t make sense,” he said.
Should a Frontier deal fall short on the shareholder vote and pave the way in which for JetBlue, Frontier could still find yourself ahead: JetBlue’s plan is to convert Spirit’s tightly packed and no-frills Airbus planes into its own, which include seatback screens, more legroom and free Wi-Fi.
Whatever JetBlue pays for Spirit “is a down payment,” Mann said. “Integration costs are going to be billions on top of that and take years.”
That will leave Frontier as the biggest and stand-out no-frills budget airline within the U.S. at a time when nearly every thing’s getting dearer.