After Frontier Airlines made an offer to buy Spirit Airlines, which the Spirit board accepted, JetBlue came in with a substantially higher offer. The Spirit board rejected JetBlue’s offer, arguing essentially that the federal government would never allow it to close for anti-trust reasons.

It was a gift from JetBlue which was offering to overpay for Spirit. The winner's curse was in effect because the market knows what Spirit is worth. It is worth less to Frontier than it is to JetBlue.

  • JetBlue is trying to buy Spirit for parts (planes, pilots, gates and slots)
  • While JetBlue intends to spend heavily to retrofit Spirit’s planes to look like JetBlue planes, and would wind up giving almost everyone a Spirit a raise up to JetBlue wages
  • Frontier would actually continue the low cost model, which has been more profitable for both Frontier and Spirit than JetBlue’s business model has been for them

The assets of Spirit would be shifted from a higher margin business to a lower margin one as a result of JetBlue paying more for it than Frontier.

The airline doubled down with a new offer. The shareholders of JetBlue were offered the same amount of money and less value from the deal.

  • Still $33 cash for Spirit, a substantial premium over Frontier’s offer
  • An agreement to divest Spirit’s assets in New York and Boston (because of the American Airlines alliance) as well as gates at other airports including Fort Lauderdale to address likely anti-trust concerns.
  • $200 million break-up fee if the deal ends due to anti-trust

The risk to Spirit of engaging in the transaction has been reduced by the fact that JetBlue will go to great lengths to ensure the deal goes through.

The board of Spirit took JetBlue off the hook from a dumb move that was criticized since it was announced.

While they will still be getting planes and pilots, they won't be picking up the airport assets that would allow them to grow in places that are most constrained. It's worse for JetBlue shareholders than this deal is likely to be approved.

It would still have faced federal government opposition. The American Airlines partnership and Fort Lauderdale are not the only anti-trust concerns that the Biden administration and Senate Democrats have.

  • There’s been some pushback even on Spirit-Frontier, though it’s expected this will eventually be approved.
  • But under that deal there will still be far more planes operating under an ultra low cost model than if JetBlue buys Spirit and shifts it away from low costs
  • As a result, the common view is JetBlue’s acquisition of Spirit will mean less low fare competition, and as a result higher fares.

The side note is that JetBlue didn't scrub their press documents.

Along with the name of the @GoldmanSachs VP who created the document. Again, a reminder to rename your documents and scrub all metadata. pic.twitter.com/bxjSiqmjBl

— Ross Feinstein (@RossFeinstein) May 2, 2022

I would demand a bigger break-up fee from any JetBlue deal, rather than walking away from it.

The revised offer and the rejection of it have been corrected.

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Two months ago, Frontier announced a deal to acquire Spirit Airlines.

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A small number of free miles in your choice of programs

The ultra low cost carrier had entered into a sale agreement with the ultra low cost carrier, but the board of the airline unanimously rejected the offer from the ultra low cost carrier. The low cost advantage of Spirit was undermined by the offer of JetBlue.

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Two months ago, a deal was announced between Frontier Airlines and Spirit Airlines. Today, JetBlue made an offer that was 40% higher than Frontier. In an internal communication that was shared with employees, JetBlue explained its rationale and its plans.

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