The fate of Spirit Airlines‘ merger with fellow budget carrier Frontier Airlines is growing murkier.
Spirit this week delayed its shareholder meeting for a third time, opening the door to more talks from both Frontier and rival suitor JetBlue Airways. The latter two delays each came just hours before Spirit shareholders were due to 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 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, according to people familiar with the matter.
Spirit would be on the hook to pay Frontier a break-up fee of more 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 a statement late Thursday: “We are 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 chance to become 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 at 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 waivered,” 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 acash-and-stock deal. Banking stock could mean a future benefit for shareholders if the travel rebound boosts the stock price. But they risk the reverse in the event of a recession or travel slowdown, though budget carriers like 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’re putting faith in what happens after the merger to make your money. With JetBlue, it’s: Here’s the money, take the money, 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 wouldn’t pass muster with the Justice Department, which is suing to block JetBlue’s own regional alliance with American Airlines in the Northeast U.S.
The Biden administration’s Justice Department has vowed to take a hard line against deals that threaten competition, even assuming divestitures. JetBlue, for example, promised to divest Spirit assets in the Northeast to make its proposed Spirit takeover more palatable.
But that’s only a concern if a Frontier deal is dead — and despite the shareholder vote delays, it may not be, according 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] and they may ultimately conclude on their own it doesn’t make sense,” he said.
Should a Frontier deal fall short at the shareholder vote and pave the way for JetBlue, Frontier could still end up 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 would leave Frontier as the largest and stand-out no-frills budget airline in the U.S. at a time when nearly everything’s getting more expensive.