Spirit Airlines (NK, Fort Lauderdale International) and JetBlue Airways (B6, New York JFK) have agreed to merge in a deal that will see the creation of the US's fifth largest airline with a combined value of USD11.9 billion in annual revenues, subject to regulatory approval.

The announcement of a definitive merger agreement approved by the boards of both airlines came 24 hours after Spirit terminated a similar merger agreement with Frontier Airlines (F9, Denver International). This left the way open for competitor JetBlue, which had been involved in a protracted bidding war with Frontier Airlines.

JetBlue will acquire Spirit for USD33.50 per share in cash, including a prepayment of USD2.50 per share in cash payable upon Spirit stockholders' approval of the transaction and a ticking fee of USD0.10 per month starting in January 2023 through closing, for an aggregate fully diluted equity value of USD3.8 billion and an adjusted enterprise value of USD7.6 billion. JetBlue has terminated its previously announced all-cash tender offer to acquire Spirit common stock.

In the event that the proposed merger is not consummated for antitrust reasons, JetBlue will pay Spirit a reverse break-up fee of USD70 million and stockholders of Spirit a reverse break-up fee of USD400 million less any amounts paid to stockholders of Spirit prior to termination.

"This is a compelling combination that provides meaningful protections for stockholders against an adverse regulatory outcome with a significant cash premium," commented Spirit Board Chairman Mac Gardner. Spirit's board had previously backed a deal with Frontier citing concerns over expected regulatory hurdles facing a merger with JetBlue, warning the New York-based budget carrier's Northeast Alliance (NEA) with American Airlines (AA, Dallas/Fort Worth) would exacerbate regulators' concerns over airline industry concentration in the US.

The completion of the merger is subject to customary closing conditions, including receipt of required regulatory approvals and approval of Spirit's stockholders. The companies expect to conclude the regulatory process and close the transaction no later than the first half of 2024.

"Even combined with Spirit, JetBlue will still be significantly smaller than the Big Four [Delta Air Lines, American Airlines, United Airlines, and Southwest Airlines]. We believe we can uniquely be a solution to the lack of competition in the US airline industry and the continued dominance of the Big Four," said JetBlue Chief Executive Officer Robin Hayes. JetBlue expects to achieve USD600-USD700 million in net annual synergies once the integration is complete.

The airlines said they would continue to operate independently until after the merger and their respective loyalty programmes remained unchanged. Following completion of the acquisition, the combined airline would be based in New York and be led by Hayes.

Spirit Airlines President and Chief Executive Officer Ted Christie labelled the agreement with JetBlue a "game changer". "We are thrilled to unite with JetBlue through our improved agreement to create the most compelling national low-fare challenger to the dominant US carriers, and we look forward to working with JetBlue to complete the transaction," he said.

Once approved, the combined airline will have a fleet of 458 aircraft on a pro forma basis and an order book of over 300 Airbus aircraft. "After closing, JetBlue will leverage the order book for the combined company to accelerate the fleet transition to next generation, fuel-efficient aircraft," the company said. JetBlue would also extend its goal to convert 10% of jet fuel to sustainable aviation fuel (SAF) by 2030 to the combined airline, with plans to introduce regular use of SAF into Spirit's West Coast operations after closing.

In an anticipated about-face, Spirit Airlines, on July 27, terminated its merger agreement with Frontier Airlines Holdings, the parent of Frontier Airlines. Despite an endorsement from its board, Spirit Airlines could not garner shareholder support for the deal, resulting in four shareholder vote postponements. A shareholder vote on July 27 was eventually recessed to a time after the close of trading.

Frontier Airlines had refused to improve on its offer in the face of a sweetened bid from JetBlue. As reported, Frontier Airlines was offering USD4.13 in cash and about 1.9 shares in Frontier Airlines for every share of Spirit Airlines, whose shareholders would own 48.5% of the merged airline.

In a statement to the market, Frontier Airlines Holdings confirmed that the merger agreement of February 5, 2022, had been terminated by mutual consent. Consistent with the agreement, Spirit Airlines would reimburse Frontier Airlines USD25 million of transaction expenses incurred.

"While we are disappointed that Spirit Airlines shareholders failed to recognise the value and consumer potential inherent in our proposed combination, the Frontier board took a disciplined approach throughout the course of its negotiations with Spirit. We were focused on offering the appropriate value for Spirit while prioritising consumers and the best interests of Frontier, our employees and shareholders. As we enter our next chapter, Frontier remains well-positioned to deliver significant value to our shareholders as we serve the growing demand for affordable air travel," commented William A. Franke, Frontier Group Holdings Chairman and Managing Partner of Indigo Partners, Frontier's majority shareholder.