By Vanni Gibertini
Spirit Airlines Rejects JetBlue’s Takeover Bid, Keeps Pursuing Merger With Frontier
In a twist that is likely to be the last in the battle for domination in the U.S. skies, on Monday Spirit Airlines’ Board of Directors rejected the $3.6 billion takeover bid launched by JetBlue and reiterated its intention to pursue a $2.9 billion merger with Frontier Airlines.
After a board meeting at the Florida-based ultra-low-cost carrier, Spirit Airlines issued a press release stating that “the unsolicited proposal received from JetBlue Airways does not constitute a ‘Superior Proposal’ as defined in Spirit’s merger agreement with Frontier Group Holdings, Inc., parent company of Frontier Airlines, Inc., because it has determined that the proposed transaction is not reasonably capable of being consummated.”
Spirit Airlines, therefore, believes the proposed takeover by JetBlue Airways would not be able to clear the necessary regulatory hurdles and it would require significant divestments by the combined carrier in order to obtain the green light from the Antitrust authorities.
The “unacceptable level of closing risk” highlighted by Spirit Airlines is also linked to the regulatory scrutiny currently faced by the ‘Northeast Alliance’ pursued by JetBlue Airways and American Airlines. In fact, the U.S. Government has sued to stop this alliance that would see the two carriers coordinate their schedules and offering at lucrative airports in the Northeast of the United States, including Boston Logan, New York-JFK, and New York LaGuardia.
On the same day, JetBlue Airways unveiled a “remedy package to address regulatory concerns” pertaining to the Northeast Alliance and to facilitate the takeover of Spirit. This package included the divestment of assets in Boston and New York, as well as some gates and assets at other airports including Fort Lauderdale, where Spirit Airlines has its main base, FlightGlobal reports.
JetBlue had also agreed to pay a $200 million “breakup fee” in case the acquisition could not be completed because of the opposition by the regulators, but even this “insurance policy” was not enough to tip the scale in favor of JetBlue Airways’ takeover bid.
While the merger proposed between Spirit Airlines and Frontier Airlines is intending to combine two airlines with similar business models, small overall market share and limited route overlap, the takeover by JetBlue would see an ultra-low-cost carrier like Spirit become part of a carrier that has evolved towards a hybrid model and is now shaping its structure and offering in a way much more befitting a legacy carrier like its Northeast Alliance partner American Airlines.
Spirit Airlines is certainly more attractive to JetBlue as a provider of certain assets like slots and gates at certain constrained airports rather than a carrier as a whole, therefore it is not difficult to foresee a reallocation of those slots to the carrier that would extract the highest value in case the takeover had gone through.
On the contrary, the airline originating from the merger between Spirit and Frontier would represent by far the largest ultra-low-cost carrier in North America and one of the largest in the world, enabling this new entity to achieve considerable economies of scope and scale and drive the development of budget flying for the next decades.