JetBlue Airlines agreed to purchase Spirit Airlines for $3.8 billion. If antitrust regulators approve the merger, the deal will make JetBlue the fifth-largest airline in the U.S. This action would be the first significant airline merger in the United States since Alaskan Air acquired Virgin Airlines over Jet Blue in 2016.
The agreement ends a protracted bidding conflict between Frontier and JetBlue for Spirit.
Spirit’s surprise all-cash offer from JetBlue in April derailed its plans to merge with Frontier. Spirit lacked the necessary shareholder backing to get the merger with Frontier approved in February successfully. The agreement led to Frontier and JetBlue’s agreement getting terminated in a bidding war for Spirit on Wednesday.
Spirit initially rejected JetBlue’s bids, claiming that approval of such a merger was unlikely, partly due to JetBlue’s Northeast alliance with American, which the Justice Department sued to prevent last year.
However, following Spirit Airlines’ decision to abandon plans to merge with fellow discount carrier Frontier Airlines, both airlines announced reaching an agreement early Thursday morning.
JetBlue’s acquisition of Spirit would turn Frontier into the most significant discount airline across the United States.
JetBlue is expected to pay Spirit a reverse break-up fee of $70 million and pay Spirit shareholders $400 million, excluding any sums paid to shareholders before termination, if the deal cannot close due to antitrust concerns.
The companies said they’re aiming to close the transaction and complete the regulatory process no later than the first half of 2024. If regulators approve, JetBlue will pay $33.50 per share for Spirit in cash, with a $2.50 prepayment and a 10-cent ticking fee beginning in 2019.
JetBlue intends to refurbish Spirit’s yellow aircraft, giving them a sleeker, modernized style. With minimal interiors, more legroom, and seatback screens. Airlines’ executives claim that acquiring Spirit accelerates the company’s growth by enabling access to more Airbus aircraft and pilots. Executives added that the merger also helps JetBlue compete with airlines that dominate the U.S. market, like American, Delta, United, and Southwest.
Following Spirit agreeing to the merger, its stock increased by approximately 4% in premarket trading, while JetBlue gained 1%, and Frontier had a 1% decline.
However, until authorities and Spirit shareholders approve the agreement, JetBlue and Spirit will continue to run independently, with their respective loyalty programs and customer accounts remaining intact.
JetBlue estimates that after the transaction gets approval, the company will save between $600 million and $700 million annually. Based on 2019 revenues, the combined company’s annual revenue is predicted to be around $11.9 billion. Additionally, JetBlue intends to operate more than 1,700 daily flights to more than 125 destinations.