In a surprise move, JetBlue Airways confirmed yesterday, Tuesday, April 5, 2022 that a proposal has been submitted to the board of directors of Spirit Airlines with the intent to acquire the airline for $33.00 per share in cash, which implies a fully diluted equity value of $3.6 billion and providing full and certain value to the shareholders of Spirit Airlines.
JetBlue Airways Confirms Proposal to Acquire Spirit Airlines For $3.6 Billion
What was thought to be a definitive merger agreement between Frontier Group Holdings, Incorporated and Spirit Airlines, Incorporated — which are the respective parent companies of Frontier Airlines and Spirit Airlines — was announced on Monday, February 7, 2022; and the merger would result in the creation of the fifth largest airline in the United States once it has been completed.
The acquisition of Spirit Airlines by JetBlue Airways would also result in the creation of the fifth largest airline in the United States, which would better position JetBlue Airways as a beneficial alternative airline — which is focused on its customers not having to choose between low fares and a great travel experience — to the dominant “big four” airlines of American Airlines, Delta Air Lines, Southwest Airlines, and United Airlines, which currently control greater than 80 percent of the domestic market in the United States.
As with the intent of Frontier Airlines merging with Spirit Airlines, this potential acquisition is being marketed by JetBlue Airways as a “superior proposal” to that of Frontier Airlines — as well as offering consumers more choice: “The combination of the two airlines would position JetBlue as the most compelling national low-fare challenger to the four large dominant U.S. carriers by accelerating JetBlue’s growth and expanding the reach of the ‘JetBlue Effect,’ which occurs when legacy carriers react to JetBlue’s unique combination of low fares and award-winning customer service. JetBlue triggers significantly greater fare decreases from legacy airlines when it enters a new market than when ultra-low-cost carriers enter a market”, according to this official press release from JetBlue Airways. “The proposal represents a premium of 52% to Spirit’s undisturbed share price on February 4, 2022, and a premium of 50% to Spirit’s closing share price on April 4, 2022.”
In addition to being more friendly to customers, the proposed combined carrier would also offer provide:
- Job growth and greater opportunities for members of flight crews
- The building of the Northeast Alliance between JetBlue Airways and American Airlines
- A strengthened commitment to New York and Florida
- Diversification and expansion of the footprint of JetBlue Airways across the United States, the Caribbean region, and Latin America
- Expanded reach of the sustainability efforts of JetBlue Airways — including the expansion of the goal of the airline to achieve net zero carbon emissions ahead of the commercial aviation industry
- The delivery of superior value and high degree of certainty for all shareholders
The current merger proposal assumes the rebranding and retrofitting of the fleet of Spirit Airlines as JetBlue Airways — as well as introducing a superior onboard experience to customers of Spirit Airlines.
“No JetBlue shareholder vote is required to complete the proposed transaction, which will not be subject to financing contingency. JetBlue has approximately $2.8 billion of cash on hand as of December 31, 2021, and has a variety of unencumbered assets available to finance, worth in aggregate approximately $9 billion”, according to the aforementioned press release. “The proposed transaction is expected to deliver $600-700 million in net annual synergies once integration is complete, driven in large part by expanded customer offerings resulting from the greater scale of the network. The combined airline is projected to have annual revenues of approximately $11.9 billion based on 2019 revenues. JetBlue expects the transaction to be accretive to earnings per share in the first full year, excluding integration costs.”
Both the Department of Justice of the United States and Spirit Airlines declined to comment on the offer at the time that this article was written — other than that Spirit Airlines would review the offer.
Controversial Government Contracts Awarded to JetBlue Airways
Some people were outraged pertaining to the announcement from the General Services Administration of the United States that it awarded the government contract for 2016 on the Washington-Dubai route to JetBlue Airways because JetBlue Airways does not actually offer service to Dubai from the United States. Rather, Emirates Airline was solely operating this route carrying an estimated 15,000 government employees of the United States, which includes active duty military personnel whose official travel is funded by taxpayers of the United States.
Moreover, a second government contract was reportedly awarded to JetBlue Airways for service between New York and Milan — even though JetBlue Airways does not actually offer service to Milan from the United States — and once again, Emirates Airline was actually the beneficiary of that contract, as it is the airline which operates service for that route as an official codeshare partner with JetBlue Airways.
Final Boarding Call
The Department of Justice of the United States — along with attorneys general in Arizona, California, Florida, Massachusetts, Pennsylvania, Virginia, and the District of Columbia — had filed a lawsuit in the District of Massachusetts on Tuesday, September 21, 2021 to block an unprecedented series of agreements between American Airlines and JetBlue Airways through which the two airlines will consolidate their operations in Boston and New York into what has been called the Northeast Alliance; so the proposed acquisition of Spirit Airlines by JetBlue Airways will likely also come under intense scrutiny of the Department of Justice of the United States, which will include a vigorous antitrust review.
Questions remain about the actual intent of this announcement. Was JetBlue Airways “forced” to consider this proposal in an attempt to not be shut out, be left behind, or be overtaken by competitors as a result of the proposed merger between Frontier Airlines and Spirit Airlines? Is the acquisition an attempt to offer less choice for the consumer and not more choice?
Stay tuned…
All photographs ©2013, ©2015, and ©2018 by Brian Cohen.
