Frontier Airlines buys Spirit for $2.9 billion in merger of low-cost carriers
Frontier Airlines’ parent company is buying Spirit Airlines in a $2.9-billion deal to increase the airlines’ competitiveness against larger rivals.
Frontier is buying Spirit Airlines in a $2.9-billion cash-and-stock deal that will create the nation’s fifth-largest carrier.
The merger is valued at $6.6 billion when accounting for the assumption of debt and other liabilities.
The companies said Monday that the transaction would provide more low-cost fares for more travelers to destinations in the U.S., Latin America and the Caribbean. Frontier Group Holdings and Spirit Airlines also anticipate $1 billion in annual consumer savings and are looking to expand their services with more than 350 aircraft on order.
“This transaction is centered around creating an aggressive ultra-low fare competitor to serve our guests even better, expand career opportunities for our team members and increase competitive pressure, resulting in more consumer-friendly fares for the flying public,” Spirit Chief Executive Ted Christie said in a prepared statement.
The carriers may be in for a very close look from anti-monopoly regulators. The Biden administration has signaled a tougher line against big corporate mergers. Yet airlines have suffered a devastating stretch during the pandemic despite assistance from the government and are in a weakened position heading into 2022.
The two airlines reported fourth-quarter financial results Monday. Both lost money in the final three months of 2021 — Spirit $87.2 million and Frontier $53 million. And as in 2020, both companies lost money for the year.
With travel demand increasing, Frontier Airlines announces new service from Burbank to Phoenix, Las Vegas and Denver starting July 15.
Frontier and Spirit say the deal will mean thousands of new jobs. The companies foresee adding 10,000 direct jobs and anticipate thousands of additional jobs at their business partners by 2026.
Existing Frontier shareholders will own about 51.5% and existing Spirit stockholders about 48.5% of the combined airline. The transaction is expected to close in the second half of the year. It still needs approval from Spirit shareholders.
Spirit shareholders will receive 1.9126 shares of Frontier plus $2.13 in cash for each existing Spirit share they own. This implies a value of $25.83 per Spirit share at Frontier’s closing stock price of $12.39 on Friday.
The combined company is expected to have annual revenue of approximately $5.3 billion, based on last year’s results. Its board will include seven members named by Frontier and five members named by Spirit. Frontier Chair William Franke will serve as chairman of the combined company.
The name that the combined company will use has yet to be determined, Christie told CNBC. Its headquarters will be determined by a committee led by Franke prior to the transaction’s closing.
Shares of Frontier, based in Denver, slipped 2.2% before the opening bell Monday. Shares of Spirit, based in Miami, jumped 12.5%.
