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JetBlue agrees to buy Spirit in $3.8 billion deal

The acquisition, subject to regulatory approval, would create the fifth-largest U.S. airline

A Spirit Airlines plane prepares to take off from Oakland International Airport on July 28, 2022. JetBlue Airways announced plans to purchase Spirit, a merger that would create the U.S.'s fifth-largest airline. (Justin Sullivan/Getty Images)

JetBlue Airways has agreed to acquire rival discount carrier Spirit Airlines, a $3.8 billion combination that would create the nation’s fifth-largest carrier, which executives say will challenge the dominance of the other four top U.S. airlines.

The deal announced Thursday came one day after Spirit terminated merger talks with Frontier Airlines. It is subject to shareholder and regulatory approval.

JetBlue plans to pay $33.50 per share in cash, representing a 31 percent premium over Spirit stock’s closing price on Thursday. The deal includes a prepayment of $2.50 once stockholders approve the transaction, plus a “ticking fee” of $0.10 per month starting in January 2023.

If the deal is approved by regulators, it would further consolidate an industry that is led by four dominant airlines: Delta, American, United and Southwest. The four carriers accounted for about 80 percent of the industry’s revenue before the pandemic.

JetBlue executives argued that allowing their company to swallow up Spirit would provide the heft it needs to successfully compete with larger rivals, a move they say would force others to drop fares. The combined company would command roughly 9 percent of the commercial airline market, according to JetBlue’s announcement, with a projected $11.9 billion in annual revenue.

“We believe we can uniquely be a solution to the lack of competition in the U.S. airline industry and the continued dominance of the Big Four,” said JetBlue chief executive Robin Hayes, who is to lead the combined company. “By enabling JetBlue to grow faster, we can go head-to-head with the legacies in more places to lower fares and improve service for everyone.”

After months of trying to fend off JetBlue, Spirit president and chief executive Ted Christie praised the deal on Thursday.

“We are thrilled to unite with JetBlue through our improved agreement to create the most compelling national low-fare challenger to the dominant U.S. carriers, and we look forward to working with JetBlue to complete the transaction,” he said in a statement.

Spirit, Frontier merger talks end as JetBlue’s competing offer awaits

Passengers won’t see the effects of any deal for some time, with the airlines facing limits on their cooperation until the merger closes. But as airlines struggle with staffing shortages and delays as they try to rebound from the pandemic, a combined Spirit and JetBlue could improve reliability. More than 30 percent of JetBlue’s and Spirit’s flights were delayed in May, according to the most recent data available, making them among the worst performers in the industry.

The combined airline would have about 1,700 daily flights to more than 125 destinations in 30 countries with a fleet of 458 aircraft, according to the announcement. Spirit operates an all-Airbus fleet of jets and JetBlue operates Airbuses and some smaller Embraer planes. While New York-based JetBlue is pitching the combined airline as a national player, it would initially have only a limited footprint on the West Coast.

With Spirit swallowed by JetBlue, Frontier has said it is positioned to expand as the largest low-fare airline. Spirit on Wednesday terminated merger talks with Frontier moments before Spirit was expected to announce the results of a shareholder vote.

Frontier’s offer was less valuable up front, but analysts said it was likely to face an easier path to regulatory approval and that the operations of Frontier and Spirit were similar. Spirit’s board had stood by the Frontier proposal, calling JetBlue’s overtures “cynical,” in a May financial disclosure. JetBlue’s leaders shot back, saying Spirit’s board was pursuing an inferior deal and had conflicts of interest.

It had been clear for several weeks that Spirit’s shareholders were unconvinced by Frontier’s offer, and a vote on the merger plan was repeatedly postponed as executives sought to rally support. ISS, an influential advisory firm, urged Spirit’s shareholders to reject the Frontier offer on July 15, calling JetBlue’s proposal superior.

In an interview Thursday, Hayes said Spirit’s initial unwillingness to engage was frustrating, but the talks between the two airlines became more productive about a month ago. The airlines spent the past few weeks nailing down the finer points of a deal, he said.

“They were defending a proposal that they felt strongly about,” Hayes said. “We had our own proposal that we felt strongly about. We’ve got this deal now. We’re both happy with it. And, you know, we’re looking ahead.”

Spirit shares rose more than 5 percent Thursday, while JetBlue shares fell slightly.

The transaction is expected to close by the first half of 2024, although the timeline is subject to regulatory and shareholder approval.

Regulatory approval is far from a certainty; the Biden administration has signaled a hard line against corporate consolidation in numerous industries. The Federal Trade Commission has already halted several blockbuster mergers, including Lockheed Martin’s $4.4 billion acquisition of rocket-maker Aerojet Rocketdyne. More recently it sued to block Facebook parent company Meta’s acquisition of a virtual reality company.

The Justice Department has also taken a harder line against consolidation. It joined seven attorneys general in trying to block a seat-sharing partnership between American Airlines and JetBlue, saying the two companies’ collaboration is anti-competitive and would lead to higher ticket prices.

Hayes said the biggest competitive issue is the large share of the market controlled by four airlines, the result of consolidation he said the Justice Department had enabled.

“We are confident in our arguments around a bigger JetBlue bringing more low fares to more markets, bringing down fares on other airlines,” he said.

The Justice Department declined to comment Thursday on the agreement.

Helane Becker, an airline analyst at financial firm Cowen, said there is significant uncertainty surrounding the deal and that federal regulatory approval could be years away.

Spirit fits an average of 228 seats on an Airbus A321, compared with JetBlue’s 178. With JetBlue planning to bring Spirit aircraft in line with its specifications, that would effectively mean taking less expensive seats out of the market — an aspect of the deal that Becker said would likely draw scrutiny.

“I think that the airlines have an uphill battle,” she said.

If regulators prevent JetBlue and Spirit from merging, JetBlue has agreed to pay a $70 million fee to Spirit, along with another $400 million in fees paid to shareholders. As an additional protection, the agreement includes the unusual ticking fee provision.

The two airlines plan to operate independently until the acquisition is completed. They would then begin the complex task of integrating the two carriers, overhauling planes and harmonizing their operations.