Frontier is buying Spirit Airlines in a USD 2.9 billion cash-and-stock deal that will create US’ fifth-largest carrier. The tie-up is valued at USD 6.6 billion when accounting for the assumption of debt and other liabilities.
The companies said Monday, February 7 that the transaction will provide more low-cost fares for more travellers to destinations in the U.S., Latin America and the Caribbean.
Frontier Group Holdings Inc. and Spirit Airlines Inc. also anticipate USD 1 billion in annual consumer savings and are looking to expand their services with more than 350 aircraft on order.
In addition, Frontier and Spirit are looking to add more jobs. The companies foresee adding 10,000 direct jobs and thousands of additional jobs at their business partners by 2026.
“This transaction is centred around creating an aggressive ultra-low fare competitor to serve our guests even better, expand career opportunities for our team members and increase competitive pressure, resulting in more consumer-friendly fares for the flying public,” Spirit CEO Ted Christie said in a prepared statement.
The carriers may be in for a very close look from antimonopoly regulators. The Biden administration has signalled a tougher line against big corporate mergers. Yet airlines have suffered a devastating stretch during the pandemic despite assistance from the U.S., and are in a weakened position heading into 2022.
Existing Frontier shareholders will own approximately 51.5% and existing Spirit stockholders will own approximately 48.5% of the combined airline. The transaction is expected to close in the second half of the year. It still needs approval from Spirit shareholders.
Spirit shareholders will receive 1.9126 shares of Frontier plus USD 2.13 in cash for each existing Spirit share they own. This implies a value of USD 25.83 per Spirit shares at Frontier’s closing stock price of USD 12.39 on Friday, February 4.
The combined company is expected to have annual revenues of approximately USD 5.3 billion, based on 2021’s results. Its board will include seven members named by Frontier and five members named by Spirit. Frontier Chair William Franke will serve as chairman of the combined company.
Shares of Frontier, based in Denver, slipped 2.2% before the opening bell Monday, February 7. Shares of Spirit, based in Miami, jumped 12.5%. Both airlines use Airbus jets and signalled they were not looking at cancelling airplane orders.
Renowned airline investor Bill Franke, a pioneer of rock-bottom fares coupled with top-up charges offered by ultra-low-cost carriers (ULCC), will be chairman of the new airline, whose brand name and CEO have not been announced.
Franke’s private equity firm Indigo Partners, which is Frontier’s majority shareholder, had previously invested in Spirit which was once considered a suitor for Frontier.
Ultra-low-cost carriers are a tier below Southwest Airlines, which pioneered the low-cost concept in the 1970s, and they have continued to expand during the COVID-19 pandemic.
The companies expect the deal to accelerate investment and help take on major U.S. airlines like American, Delta Air Lines, Southwest and United Airlines Holdings.