JetBlue has offered an “unsolicited” proposal to buy Spirit Airlines for US$3.6 billion, now derailing the merger with Frontier Airlines to become the fifth largest United States carrier.
According to the Long Island City-based airline’s proposal, it is offering $33 a share in cash, up from Frontiers current value of $25 after its shares have fallen since announcing the deal in February.
“JetBlue firmly believes its proposal constitutes a ‘superior proposal’ under Spirit’s merger agreement with Frontier and represents the most attractive opportunity for Spirit’s shareholders,” the carrier said on Tuesday.
In early February, ultra-low-cost airlines Frontier and Spirit announced they were joining forces to compete against the “big four”, including American Airlines, United Airlines, Southwest Airlines and Delta Air Lines.
The four carriers obtain 80 per cent of the US travel market, but the merger would focus on serving more routes in Latin America and the Caribbean and share complementary fleets to boost daily services.
However, JetBlue believes combining with Spirit would be a “game changer” for its customers and its controversial Northeast Alliance with American Airlines.
“While JetBlue and Spirit are different in many ways, we also have much in common, including a focus on keeping our costs low so we can profitably expand and offer an attractive alternative to the dominant ‘big four’ airlines,” JetBlue said.
In response, Spirit said it received the “unsolicited proposal from JetBlue Airways” and would review it in accordance with its merger with Frontier.
“The Spirit board of directors will work with its financial and legal advisors to evaluate JetBlue’s proposal and pursue the course of action it determines to be in the best interests of Spirit and its stockholders.”
Despite the merger between Spirit and Frontier making more sense to industry analysts according to The New York Times, such as their similar low-cost ambitions and regional routes, JetBlue could strengthen Spirit’s foothold in Florida.
JetBlue said it could grow its focus cities under the proposal, such as Los Angeles, Fort Lauderdale, Orlando and San Juan, “as well as in legacy hubs where the dominant carriers’ control with high fares”, including Las Vegas, Dallas, Houston, Chicago, Detroit, Atlanta and Miami.
Frontier has responded to the proposal, claiming their offer is a superior deal over JetBlue’s.
“A combined Spirit and Frontier will deliver $1 billion in annual savings for consumers and offer even more ultra-low fares to more places nationwide, creating America’s most competitive ultra-low fare airline,” Frontier said.
JetBlue said the deal with Spirit is expected to deliver between $600 to $700 million in annual cost savings.
If the transaction follows through with JetBlue, the combined company would have over 32,000 crew members, and plans to hire more.
It would also have an all-Airbus fleet of 455 aircraft, with an additional 312 on order, and according to JetBlue, it would be the “youngest and most fuel efficient in the industry”.