Official: JetBlue & Spirit Plan To Merge

The merger agreement was terminated by Spirit after shareholders voted against it. The airlines are on the same page for the first time about a merger.

Terms of JetBlue’s acquisition of Spirit

The boards of both airlines have approved a merger.

• JetBlue will acquire Spirit for $33.50 per share in cash
• This includes $2.50 per share in cash payable upon Spirit shareholders approving the transaction
• JetBlue will pay a ticking fee of $0.10 per month starting in January 2023 through closing

An adjusted enterprise value of $8.6 billion is given for the deal. It could take nearly two years until the merger is finalized according to the claims. The airlines will remain independent until then.

The CEO of the airline had a statement about the deal.

“We are excited to deliver this compelling combination that turbocharges our strategic growth, enabling JetBlue to bring our unique blend of low fares and exceptional service to more customers, on more routes. We look forward to welcoming Spirit’s outstanding Team Members to JetBlue and together creating a customer-centric, fifth-largest carrier in the United States. Spirit and JetBlue will continue to advance our shared goal of disrupting the industry to bring down fares from the Big Four airlines. This combination is an exciting opportunity to diversify and expand our network, add jobs and new possibilities for Crewmembers, and expand our platform for profitable growth.”

Here is what Ted Christie had to say.

“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. Bringing our two airlines together will be a game changer, and we are confident that JetBlue will deliver opportunities for our Guests and Team Members with JetBlue’s unique blend of low fares and award-winning service. We especially appreciate the commitment of our Spirit Family throughout this process. Today’s exciting announcement reflects JetBlue’s admiration for Spirit and a shared belief in what the combined airline can bring for our Guests.”

It is kind of funny to see those comments, because the management of the company was against a merger until yesterday.

Will the JetBlue & Spirit deal get regulatory approval?

On paper, Frontier's offer was better than the one offered by JetBlue. Was the deal going to get regulatory approval? One of the country's biggest ultra low cost carriers would be eliminated as a result of the plan to bring the JetBlue experience to the fleet.

JetBlue is marketing a takeover of Spirit as a way for it to grow faster and go head-to-head withlegacy airlines in more places and at lower fares to improve service for everyone. The airline would still be smaller than the big four.

The case JetBlue is trying to make is similar to this one.

• The four largest carriers control more than 80% of the market, so allowing JetBlue to grow will be the best opportunity to disrupt legacy airline pricing
• Even when the merger is complete, JetBlue and Spirit would only have 9% market share, compared to 13-23% market share for each of the four largest airlines
• The combined airline would have no more than 40% market share in any large metro area, compared to 57-91% with some of the legacy carriers in their largest metro areas
• JetBlue has the best track record for disrupting legacy airlines across the board, whether it’s in economy or business class
• The Northeast Alliance with American Airlines is accelerating growth of JetBlue’s service in the Northeast, where Delta and United previously had limited competition, and where JetBlue was locked out of future growth in slot-constrained and congested airports
• JetBlue has committed to divesting Sprit’s slots in the Northeast, to allow for allocations to other ultra low cost carriers

If the proposed agreement is not concluded for antitrust reasons, JetBlue will pay a reverse break-up fee of $70 million and shareholders of Spirit will be paid a reverse break-up fee of $400 million.

My take on a JetBlue & Spirit merger

There are some initial thoughts I have on this agreement.

• This shows how persistence pays off; JetBlue’s management wouldn’t give up with wanting to acquire Spirit, including attempting a hostile takeover, and… it worked!
• The only potential winners here are Spirit Airlines shareholders, and maybe even Frontier Airlines, because if this deal happens, JetBlue will give up Spirit’s slots in the Northeast to other ultra low cost carriers (probably Frontier!)
• JetBlue is essentially paying an unbelievable amount of money in order to acquire planes and employees, since Spirit’s business model would allegedly go away, JetBlue would have to spend a ton reconfiguring Spirit planes, and Spirit’s slots in the Northeast would even be given to other airlines
• On the one hand, it seems unreasonable not to approve this deal, if JetBlue is willing to give up Spirit’s slots in the Northeast, since the combined airline would still be smaller than the “Big Four”
• On the other hand, eliminating one of the biggest ultra low cost carriers in the country doesn’t seem good for consumers, since Sprit brought some really unique things to the market; then again, neither was the consolidation we saw in the industry prior to that

Bottom line

The shareholders had a different vision for the future of the company. The merger with Frontier was canceled and now the company is looking at a merger with another airline. I will be curious to see how this plays out. The plan is for the business model to survive if the merger happens.

I can't say I'm happy about this because I appreciate both airlines for what they're.

What do you think about the plan for a merger?