Frontier Proposes $2.9B Merger with Spirit Airlines

Frontier Group Holdings, Inc., the parent company of Frontier Airlines (F9, Denver International), has renewed its proposal to merge with Spirit Airlines (NK, Fort Lauderdale International). Announced on January 29, 2025, the deal aims to consolidate two major players in the low-cost carrier sector, potentially reshaping the competitive landscape of the U.S. airline industry.

The proposed merger is structured through newly issued Frontier debt and ordinary shares. Frontier’s offer includes issuing USD 400 million in debt and granting 19% of Frontier’s ordinary equity to Spirit’s creditors. The total value of the proposal is estimated to be at least USD 2.16 billion, with the potential to reach up to USD 2.9 billion. If successful, the combined airline would become the fifth-largest in the United States, carrying 100 million passengers and operating over 400 aircraft within a few years.

Frontier Group’s management anticipates an expedited due diligence process, aiming to complete it within five to ten days. However, Spirit Airlines’ chief executive, Ted Christie, and chairman of the board, Mac Gardner, have expressed significant concerns regarding the terms of the new proposal. In a letter dated January 11, 2025, they stated that Frontier’s latest offer represents “an extremely material reduction in value compared to our 2024 agreement in principle.”

Christie and Gardner highlighted several critical issues with the proposal, including the reduction of take-back debt from USD 580 million to USD 400 million and the decrease in equity stake from 26.5% to 19%. Additionally, the proposal requires Spirit’s creditors to make an additional USD 350 million equity investment, effectively asking them to fund their own debt position in the merged entity. This arrangement falls short of Spirit’s current needs, especially as the airline operates under Chapter 11 bankruptcy protection. “The USD 400 million of debt is less than half of what will be provided to creditors under the existing restructuring plan,” they noted.

In response to Frontier’s renewed interest, Spirit Airlines’ board has directed management to proceed with its standalone Chapter 11 reorganization. This decision comes after previous merger talks in 2022 were derailed when Frontier was outbid by a higher offer from JetBlue Airways (B6, New York JFK). Although JetBlue’s acquisition of Spirit was ultimately blocked by a federal judge in 2024 due to competition concerns, Frontier resumed merger discussions with Spirit. However, these talks collapsed before Spirit filed for Chapter 11 in November 2024, citing ongoing maintenance issues with Pratt & Whitney geared turbofan engines and the failed merger with JetBlue.

Frontier’s chairman, Bill Franke, argues that Spirit’s standalone restructuring plan would leave the airline highly leveraged and continuing to operate at a loss. “Under Spirit’s current standalone plan, the airline would emerge highly leveraged and continue to operate at a loss,” Franke asserted, emphasizing the necessity of the merger to stabilize Spirit’s financial situation.

The aviation industry is closely monitoring this renewed merger proposal, given its potential to create a formidable low-cost carrier in the U.S. market. A merger between Frontier and Spirit could lead to enhanced operational efficiencies, expanded route networks, and increased market share. However, regulatory approval from the Department of Transportation (DOT) and antitrust authorities will be crucial in determining the feasibility of this deal.

If approved, the merger would not only strengthen Frontier’s position but also provide Spirit Airlines with the financial backing needed to overcome its current challenges. The combined airline would benefit from Frontier’s operational expertise and Spirit’s extensive route network, potentially offering more competitive pricing and improved services to passengers.

As the situation develops, both airlines are expected to engage in further negotiations to address the concerns raised by Spirit’s leadership. The outcome of this merger proposal could significantly impact the dynamics of the U.S. low-cost carrier market, influencing competition, pricing strategies, and consumer choices.

For now, Frontier Group Holdings continues to advocate for the merger as a strategic move to ensure the long-term viability and growth of both airlines. Meanwhile, Spirit Airlines remains focused on its restructuring efforts, aiming to emerge from bankruptcy stronger and more resilient.

Stay tuned for more updates on the Frontier-Spirit merger proposal as the airlines navigate the complexities of this potential deal and work towards securing a stable and prosperous future in the competitive airline industry.

For more information on Frontier Airlines and Spirit Airlines, visit Frontier’s official website and Spirit’s official website.

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Sources: AirGuide Business airguide.info, bing.com, ch-aviation.com