JetBlue makes massive progress with its acquisition of Spirit Airlines

On July 28, 2022, the merger was officially announced after competitor Frontier Group abandoned its own merger proposal with Spirit.

The deal was reached after a prolonged bargain for the low-cost carrier involving Frontier Group Holdings (ULCC) and JetBlue Airways.

The bid, which was roughly $2.8 billion by Frontier, was well below the offer. As shareholders voted on the February deal, Frontier and Spirit decided to annul it.  Due to worries regarding regulatory approval, Spirit's board had suggested choosing Frontier over JetBlue.

By agreeing to pay $3.8 billion for Spirit Airlines (SAVE), JetBlue Airways (JBLU) will become the fifth-largest airline in the United States.

Spirit's surprising all-cash offer from JetBlue in April derailed its plans to merge with Frontier. Then, in an effort to lure Spirit, Frontier and JetBlue each made better offers. The CEO of Frontier expressed concern earlier this month concerning the lack of shareholder approval for the merger agreement but referred to the offer as "best and final."

Following the big reveal on Thursday morning, shares of Frontier rose more than 20% to $13.58. Spirit increased by 5.6% to $25.66, while JetBlue decreased by 0.4% to close out the day at $8.37.

The combination of Spirit and JetBlue will result in the fifth-largest airline in the United States, with expected annual revenues of about $11.9 billion. JetBlue added that it anticipates the deal will considerably increase earnings per share in the first full year after closing, according to Investopedia.

Over 80% of the industry is currently controlled by the top four carriers, and JetBlue said that its combined market share with Spirit would be about 9%.

According to a press release, the acquisition will enable JetBlue to increase its presence in a number of significant cities, including Orlando, San Juan, Fort Lauderdale, and Los Angeles, as well as the hotspots of the Big Four airlines in key cities including Las Vegas, Dallas, Houston, Chicago, Detroit, Atlanta, and Miami.

JetBlue executives claim that acquiring Spirit will accelerate the company's expansion by enabling it to access more Airbus aircraft and pilots and enable it compete with other airlines like American, Delta, United, and Southwest, which dominate the majority of the U.S. marketplace. The New York-based airline intends to remodel Spirit's yellow aircraft, giving them JetBlue-style, minimal interiors with additional legroom and seatback screens.

JetBlue said that it will purchase Spirit for $33.50 per share in cash, with a $2.50 per share prepayment should Spirit investors approve the merger, and a 10 cent ticking fee per month starting in 2023 until the close of the deal.

“We have two priorities: one is to get this deal closed and get the airline integrated and build a bigger JetBlue,” JetBlue CEO Robin Hayes said in an interview Thursday. “Secondly to run a reliable operation in the meantime.”

JetBlue and Spirit stated in a filing that the merger is anticipated to close in the first half of 2024. According to a spokeswoman, they anticipate being able to operate on the same certificate, effectively as the same airline, in the first half of 2025.