JetBlue Airways has made an offer to take over Spirit Airlines for about $3.6 billion, according to three people familiar with the matter, throwing a wrench into Spirit’s plan to merge with Frontier Airlines.
Spirit and Frontier, the two economical transportation companies that operate largely locally, had Agree to merge In early February in a deal the companies said would generate about $1 billion in annual savings for consumers. One person said JetBlue offered $33 for the cash share. That price is nearly a 40 percent premium to Frontier’s cash offering and Spirit’s share offering, which is impliedly worth about $23 a share at current prices.
Frontier’s shares have fallen more than 10 percent since shortly before the two companies announced the deal, reducing the value of its original offer. One person said Spirit’s board has not yet made a decision on which deal to pursue, but plans to thoroughly review JetBlue’s bid.
Spirit and Frontier said that through the merger, it will make the airline industry more competitive. They said the combined entity would become the country’s fifth largest airline by market share, making it a stronger competitor to the four major airlines, which control about two-thirds of the domestic market. JetBlue is the sixth largest airline in the United States.
Industry analysts say the merger of Spirit and Frontier makes sense given the overlapping business models and different regional strengths. Both were formed by Indigo Partners, a private equity firm that invests in what are known as “ultra-low-cost airlines” – airlines that focus heavily on the bottom line – and has partnered with both carriers.
But combining Spirit and JetBlue is less convenient. Both companies are largely concentrated in the eastern United States. Spirit keeps costs and prices low by charging extra for everything from carry-on bags to seat selection. By contrast, JetBlue offers more premium options and offers free in-flight perks like branded snacks and wireless access.
Either deal could face scrutiny from the Biden administration, which has taken a tougher stance on mergers. Last month, many progressive lawmakers express doubts About the proposed merger of Spirit and Frontier. Senators Elizabeth Warren of Massachusetts and Bernie Sanders of Vermont were among those who warned that the deal, if done, could raise ticket prices and reduce customer service.
JetBlue has undergone its own antitrust audit. Last year the Ministry of Justice lawsuit to prevent JetBlue from forming a domestic alliance with American Airlines, arguing that the agreement would raise fares and reduce competition. The airlines rejected the premise of the lawsuit, arguing that their partnership would in fact help increase competition against Delta Air Lines, United Airlines and at New York airports.
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