JetBlue agrees to acquire Spirit for US$3.8b in cash

JETBLUE Airways is acquiring deep-discounter Spirit Airlines for at least US$3.8 billion in cash in a deal announced less than a day after Spirit called off a planned merger with Frontier Group Holdings.

JetBlue will pay US$33.50 per share for Spirit, or as much as US$34.15 depending on timing, the airlines said in a joint statement on Thursday (Jul 28). That includes a US$2.50 a share prepayment once Spirit stockholders approve the deal agreed to by the airlines’ boards, they said. 

The agreement caps a more than 3-month battle by JetBlue to derail the Spirit-Frontier deal in a bid to expand its own network, fleet and access to pilots. The rival US$2.6 billion stock-and-cash deal with Frontier collapsed late on Wednesday after failing to win enough shareholder support for it despite having the approval of Spirit’s board. 

“We want to get this deal done,” JetBlue chief executive officer Robin Hayes said in an interview, noting his company’s plans to divest some assets to help win approval from sceptical regulators. 

JetBlue is banking on the combination to give it sufficient scope to effectively influence pricing against the nation’s largest airlines, luring away their passengers with lower fares and a comparable onboard product. A merger would cement JetBlue as the fifth-largest carrier in the US based on domestic passenger traffic.

Spirit shares rose 4 per cent in premarket trading to US$25.29 as at 7.33 am in New York. JetBlue rose 1.1 per cent to US$8.49.

Hayes kept Spirit shareholders out of the arms of its ultra low-cost competitor by offering more cash, upfront dividend payments and a breakup fee if antitrust regulators intervene — something which could derail a merger. 

The final deal largely matched JetBlue’s last public offer for Spirit, with the exception of an increase in that breakup fee to US$470 million from US$400 million, with a portion being paid to Spirit itself and the rest to shareholders.

“Absolutely it was important, and JetBlue recognised that,” Spirit chief executive officer Ted Christie said in an interview of the unusual fee.

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The Biden administration has pledged to more thoroughly scrutinise mergers to assess their market concentration and value to consumers. JetBlue has said it would be willing to give up Spirit assets in New York and Boston, and possibly at other crowded airports, to help secure approval.

JetBlue already faces opposition from the Justice Department, which has sued to break up its commercial agreement with American Airlines Group. The regulators allege that partnership — which targets the New York and Boston markets — is anticompetitive. 

Spirit had rebuffed earlier offers from JetBlue based in part on a demand that its suitor abandon the so-called “Northeast Alliance” with American to improve chances for its own combination.

Hayes has pledged to convert Spirit’s ultra-discount business model to its own, which features low fares and customer-friendly service such asfree Wi-Fi. The company also plans to shift Spirit’s employees to its higher pay scales and convert Spirit’s jam-packed planes to a more roomy seating arrangement. That is all expected to boost costs at JetBlue, which historically has struggled to control operating expenses. BLOOMBERG