JetBlue and Frontier are battling for the merger opportunity with Spirit Airlines. JetBlue wins battle for Spirit airline. The transaction would create the fifth largest airline in the U.S. But the deal is still complicated given the regulatory uncertainty. This merger could reshape the airline industry by putting pressure on the nation’s four dominant carriers.
MARKET SHARE DISTRIBUTION
As of April 2022, American had 18.4% of the U.S. airline market, followed by Southwest at 17.2%, Delta at 17.1% and United 13.9%. Alaska Airlines had 5.6% and JetBlue 5.4%. Spirit was the seventh largest at 4.8%.
DEAL STRUCTURE
JetBlue Offer:
All-cash deal valuing Spirit at $33.5 a share - $3.8B
$400mn reverse break fee
Special dividends will be distributed from a portion of the merger consideration
Frontier Offer:
Stock and Cash deal valuing Spirit at $25 a share - ($4.13 cash + 1.9 share of Frontier for 1 share of Spirit)
$350mn reverse break fee
DEAL RATIONALE (Form S4 - P30)
JetBlue:
Create a true national competitor to the dominant legacy carriers
More Airbus jetliners and pilots to help it compete with large carriers
Prevent Frontier from buying it as a potential business risk
Synergies - the deal would result in annual savings of $600mn to $700mn thanks to increased network reliance, schedule optimization, and economies of scale on existing cost bases
Frontier:
Expected to deliver a $500mn cost synergy since both Frontier and Spirits are ultra low-cost carriers
Quickly fill in the pilot and staffs shortage
To prevent Jetblue from buying Spirit
KEY FINANCIALS
(USD mn, except share price)
Source: J.P. Morgan
*Data as of market close on 12/8/2022
WHAT HAPPEN NEXT
Spirit shares rose nearly 4% in pre-market after JetBlue agreed to buy Spirit trading at $25.25 a share, while JetBlue and Frontier stocks were up 1% and 6%. JetBlue’s victory over Frontier has marked the start of a fight to get regulators to bless the deal. JetBlue has agreed to pay Spirit’s shareholders a $400mn breakup fee if the deal is prohibited by antitrust regulators.