After All, JetBlue And Spirit To Form New AirlineJuly 29, 2022
A day after Spirit Airlines announced the termination of its merger agreement with Frontier Airlines, JetBlue, the sole remaining contender for the merger acquisition of Spirit Airlines appeared ready to secure the deal. Hours later, JetBlue Airways Corporation and Spirit Airlines, Inc. announced that their boards of directors had approved a definitive merger agreement allowing JetBlue to acquire Spirit.
According to the announcement, the transaction has been priced at “$33.50 per share in cash, with a prepayment of $2.50 per share in cash payable to Spirit stockholders’ approval of the transaction and a ticking fee of $0.10 per month starting in January 2023 through closing”. The equity side of that deal has been valued at $3.8 billion with an overall “enterprise value” of $7.6 billion.
The collapse of the Frontier-Spirit deal was only a matter of time after several Spirit special stockholder meetings kept being postponed, under the pressure deliberetaly applied by JetBlue successive sweetened counter-offers.
The merger will now likely see JetBlue transformed into a new national low-fare carrier able to challenge the dominance of the four well established U.S. carriers, American Airlines, Delta Airlines, United Airlines and Southwest Airline.
While it is expected that this merger will undergo a lengthy regulatory clearing process, JetBlue is likely to eventually absorb all of Spirit Airlines assets making it able to offer more than 1,700 daily flights to more than 125 destinations in 30 countries (based on December 2022 schedules). The new airline will fly a combined fleet of 458 aircraft comprising some 300 highly fuel efficient Airbus A220s and A320s family aircraft.
In terms of market share, the new JetBlue Airline will become the fifth largest carrier in the United States and is expected to have a 9% market share, behind Southwest Airlines, the fourth largest airline which enjoys a 13% market share. Yet JetBlue seems to be well positioned in the key largest metro area where it is expected to grow its market share to 40%.
For now, a strong antitrust response is to be expected from the US Justice Department which is likely to file various lawsuits. To the benefit of Spirit shareholders, the deal with JetBlue had been sprinkled with generous financial compensation clauses in the event that the proposed agreement would fail the regulatory approval process. Under that clause, JetBlue is to pay Spirit a reverse break-up fee of $70 million while stockholders of Spirit will receive a reverse break-up fee of $400 million less any amounts paid to stockholders prior to termination.