Saturday, Mar 2, 2024

JetBlue agrees to buy Spirit for $3.8 billion after a bidding war

JetBlue Airways agreed to purchase Spirit Airlines for $3.8billion. If the deal is approved by antitrust regulators, it will make the country's fifth largest airline.

Thursday's agreement caps a long bidding war that lasted months. It comes one day after Spirit tried to merge with Frontier Airlines, a budget carrier.

After arguing strongly against the sale, Spirit CEO Ted Christie finds himself in an awkward position of having to defend it before JetBlue. He claimed that antitrust regulators wouldn't allow it.

Christie stated on CNBC that "a lot has been said in the last few months evidently, always keeping our stakeholders in mind," "We've been listening to JetBlue and they have some great thoughts about their plans."

JetBlue's argument for regulatory approval rests upon two main arguments. Its size means it is better placed to make larger airlines lower fares. And it has already offered to give up Spirit gates, takeoff and landing slots at key New York, Boston and Florida airports.

Robin Hayes, JetBlue CEO, stated that these concessions will allow other low-cost carriers such as Frontier to increase their presence and competition.

Hayes stated in an interview that "the real problem here is clearly what can be done in the U.S. in order to make an airline industry more competitive against the large, major four airlines." We believe that the most disruptive and effective thing we can do is to build JetBlue faster than we could otherwise.

JetBlue and Spirit together would control about 9 percent of America's air-travel market. When international flights are added, American, United and Delta control around 80 percent.

Hayes stated that Spirit planes will be converted into JetBlue's configuration. This allows for more legroom, and will result in fewer seats being sold on each flight. He stated that JetBlue would increase the salaries of Spirit employees.

JetBlue and Spirit have been discussing for several weeks how Spirit can retain key employees, while its fate remains uncertain. After early July, the financial terms of this deal did not change.

Midday trading on Thursday saw Spirit shares rise 4 percent to $25.31. This is still less than the JetBlue price. JetBlue shares fell 2 percent and Frontier, which is considered to be a benefit if Spirit goes under as a discount competitor, jumped 19 percent.

Spirit Airlines is often ranked as the worst or very close to the worst airline according to consumer complaints. Some consumer advocates are concerned that the airline will disappear and that fares could rise.

Spirit and Allegiant, which are competitors to Allegiant and Frontier, offer the lowest fares. However they add fees that can increase the cost of flight.

William McGee, antimerger American Economic Liberties Project, stated that Spirit and its low-cost structure will disappear. "Once Spirit [into JetBlue], there's no doubt that fares will go up."

Others believe that Frontier will expand--it has many planes in order--and fill the gap left by Spirit at the lowest segment of the air-travel industry.

JetBlue and Spirit will continue operating independently until the agreement with Spirit shareholders and regulators is approved. They will have separate loyalty programs for customers and customer accounts.

Both companies stated that they expected to close the transaction and complete the regulatory process by the end of the first half 2024. The combined airline would be headed by Hayes and based in New York City, JetBlue's hometown. It would own a fleet consisting of 458 aircraft.

JetBlue announced Thursday that it would pay $33.50 per Spirit share in cash, with a $2.50 prepayment to Spirit stockholders. To compensate Spirit shareholders who are delayed in receiving regulatory approval, there is a monthly ticking fee of 10c per share. This will be paid from January 2023 to closing.

JetBlue will pay Spirit shareholders $400 million if the deal is not closed due to antitrust concerns.

Spirit and Frontier announced their plans to merge in February. Spirit's board remained firm on that deal even though JetBlue offered a better price in April. Spirit's board was unable to convince shareholders to approve the merger. Voting on the merger was delayed four times, then halted Wednesday when Spirit and Frontier announced that they were ending their agreement. This made it inevitable for Spirit-JetBlue to merge.

JetBlue expects to save $600 million-$700 million annually once the transaction is completed. Based on 2019 revenues, the combined company's annual revenue is expected to be approximately $11.9 billion.

Reddit: Next: How to Travel with Just One Bag This Summer