In a surprising twist of the tale, the purchase of Spirit Airlines by Frontier Airlines might not become as straightforward as previously thought. JetBlue has entered the stage by making an unsolicited offer to buy Spirit for $3.6 billion, it announced on April 5. JetBlue counters Frontier offer for Spirit.
JetBlue says it is offering $33 per share or 52 percent more than Spirit’s share on Friday, February 4, the last day before Indigo Partners and Frontier made their offer for Spirit on February 7. Indigo’s Bill Franke said then that the combination of Frontier and Spirit would create the biggest ultra-low-cost airline in the US, offering the best value for customers.
In its press release, JetBlue counters this by saying that a combination with Spirit “would position JetBlue as the most compelling national low-fare challenger to the four large dominant US carriers by accelerating JetBlue’s growth and expanding the reach of the “JetBlue Effect,” which occurs when legacy carriers react to JetBlue’s unique combination of low fares and award-winning customer service with lower fares.”
JetBlue CEO Robin Hayes says: “The combination of JetBlue and Spirit – coupled with the incredible benefits of our Northeast Alliance with American Airlines – would be a game-changer in our ability to deliver superior value on a national scale to customers, crewmembers, communities, and shareholders.”
But key to JetBlue is that “the transaction would accelerate our strategic growth and create sustained, long-term value for the stakeholders in both companies.” The combination of the two airlines would make it the fifth-largest US airline. JetBlue plans aggressive growth in the US Northeast, increasing the number of flights out of New York JFK, Newark, and LaGuardia from 200 to 300 a day. It also grows at Boston, announcing just today that it will add Boston to London Gatwick from July 19 and to London Heathrow from August 22 to its transatlantic network. A combination with Fort Lauderdale-based Spirit would strengthen its presence in Florida and offer new options.
JetBlue announced it will launch services between Boston and London Gatwick and Heathrow this summer. It already operates in Heathrow from New York JFK. (JetBlue)
Transaction will turbocharge JetBlue’s growth
JetBlue also says that the proposed transaction would “turbocharge” its network strategy and footprint in the Caribbean and Latin America. “The combined network would serve more than 77 million customers annually on more than 1.700 daily flights to over 130 destinations in 27 countries from Peru to the United Kingdom – increasing customer options with a significantly broader network and increasing relevance and connectivity in JetBlue’s focus cities.”
Hayes adds: “While JetBlue and Spirit are different in many ways, we also have much in common, including a focus on keeping our costs low so we can profitably expand and offer an attractive alternative to the dominant ‘Big Four’ airlines. We would conduct a full review of Spirit’s product offering, operational and customer technology, and talent pool to optimize the combined airline.”
It would have an all-Airbus fleet of 455 aircraft, with 312 more on order. The combination would deliver $600-700 million in net annual synergies, driven in large part by expanded customer offerings resulting from the greater scale of the network, says JetBlue. “The combined airline is projected to have annual revenues of approximately $11.9 billion based on 2019 revenues. JetBlue expects the transaction to be accretive to earnings per share in the first full year, excluding integration costs.”
JetBlue plans to finance the transaction in cash from its $2.8 billion cash reserves and with debt financing through Goldman Sachs. It says the transaction will need no approval from JetBlue’s shareholders. Regulatory approval would be completed on a timely basis, in line with the timeframe outlined for the Frontier proposal.
Spirit will evaluate offer
Spirit confirms it has received the offer. It says in a statement: “Consistent with its fiduciary duties, the Spirit Board of Directors will work with its financial and legal advisors to evaluate JetBlue’s proposal and pursue the course of action it determines to be in the best interests of Spirit and its stockholders. The Board will conduct this evaluation in accordance with the terms of the Company’s merger agreement with Frontier and respond in due course. Spirit shareholders do not need to take any action at this time.”
In response to the JetBlue offer, Frontier Airlines said that the combination of ultra-low-cost Spirit and higher-priced JetBlue will result in higher ticket prices for consumers and reduce competition, notably on the East coast where networks of both carriers overlap. A Frontier-Spirit merger will result in lower fares and deliver $1.0 billion in annual savings.
Active as a journalist since 1987, with a background in newspapers, magazines, and a regional news station, Richard has been covering commercial aviation on a freelance basis since late 2016.
Richard is contributing to AirInsight since December 2018. He also writes for Airliner World, Aviation News, Piloot & Vliegtuig, and Luchtvaartnieuws Magazine. Twitter: @rschuur_aero.
