JetBlue to buy Spirit for $3.8 billion in push to become the fifth-largest US carrier

JetBlue Airways has reached a $3.8 billion deal to buy Spirit Airlines in a takeover that would create the country’s fifth-largest airline and remove a fast-growing budget carrier from the market.

The deal, announced Thursday morning, caps a fierce, monthslong bidding war for Spirit and came hours after Spirit scrapped plans to combine with fellow discounter Frontier Airlines. Spirit lacked the shareholder support to win approval of the Frontier merger, which was first unveiled in February.

If approved by regulators, JetBlue’s takeover of Spirit would leave Frontier as the largest discount carrier in the U.S. It would also be the first major U.S. airline deal since 2016, when Alaska Airlines beat out JetBlue for Virgin America. Analysts say the deal could also open the door for more consolidation among smaller carriers.

JetBlue executives say that buying Spirit would fast-track its growth by giving it access to more Airbus jetliners and pilots and help it compete with large carriers like American, Delta, United and Southwest, which control most of the U.S. market. The New York-based carrier plans to refurbish Spirit’s yellow planes with sparse interiors in JetBlue style, featuring seatback screens and more legroom.

JetBlue said it will pay $33.50 a share in cash for Spirit, including a $2.50 per share prepayment if Spirit shareholders approve the deal and a 10 cent per month ticking fee starting next year until the deal closes.

Years of work ahead
The deal is expected to close in the first half of 2024, JetBlue and Spirit said in a filing. They expect to be able to fly on the same operating certificate, essentially as the same airline, in the first half of 2025, a spokeswoman said.

“We have two priorities: one is to get this deal closed and get the airline integrated and build a bigger JetBlue,” JetBlue CEO Robin Hayes said in an interview Thursday. “Secondly to run a reliable operation in the meantime.”

Hayes would helm the combined airline, which JetBlue said would remain headquartered in New York City.

“We have a long-term commitment to New York … and we’re going to stay here,” Hayes said. Both airlines have large operations in some of Florida’s busiest airports, including Spirit’s home base of Fort Lauderdale and the tourism hub Orlando.

JetBlue’s surprise, all-cash bid for Spirit in April threw Spirit’s plan to combine with Frontier into disarray. Frontier and JetBlue then competed for Spirit, each sweetening their offers. Earlier this month, Frontier’s CEO fretted about the lack of shareholder support for its proposed merger but called its offer “best and final.”

“Rather than overpay for Spirit, the board prioritized the interest of Frontier, our employees and our shareholders,” Frontier CEO Barry Biffle said on an earnings call late Wednesday.

Frontier shares surged more than 20% to $13.58 on Thursday. Spirit rose 5.6% to $25.66, and JetBlue lost 0.4% to end Thursday at $8.37.

“Should a JetBlue-Spirit merger occur, we believe Frontier will largely inherit the keys to the low-cost kingdom in the U.S.,” JP Morgan airline analyst Jamie Baker wrote in a note Thursday.

Spirit backs down
Miramar, Florida-based Spirit had repeatedly rebuffed JetBlue’s bids and said the tie-up wasn’t likely to be approved by regulators, in part because JetBlue’s alliance with American in the Northeast, which the Justice Department sued to block last year. Spirit said the deal would drive up fares and that American would wield too much control over JetBlue.

When asked what changed Spirit’s stance on the JetBlue deal, Spirit CEO Ted Christie said: “That merger agreement [with Frontier] is now terminated so that’s a notable change and that leads to where we are today.”

Spirit has to pay Frontier $25 million in merger-related costs because of the terminated agreement, according to Frontier.

A wave of airline consolidation since the mid-2000s has left the big four U.S. airlines in control of about three-quarters of the domestic air travel market. President Joe Biden’s Justice Department has vowed a strong response to deals it considers anti-competitive.

The Justice Department didn’t immediately comment on the JetBlue-Spirit deal on Thursday. American declined to comment on the deal.

Leslie Josephs www.cnbc.com