JetBlue launches surprise $3.6 billion bid for super-budget carrier Spirit

JetBlue Airways has made an unsolicited $3.6 billion bid for Spirit Airlines, which could derail merger plans between the ultra-low-cost carrier and Frontier Group Holdings.

The surprise takeover bid shocked some Wall Street analysts, who questioned the benefits of a merger between JetBlue and Spirit and predicted intense antitrust regulatory scrutiny.

‘Wait what?’ MKM Partners analysts asked in a note, reflecting confusion over how the deal would benefit JetBlue.

Frontier, which has its own $2.7 billion merger plan with Spirit, slammed the proposal, calling JetBlue a “high-fare carrier” and insisting the deal “would result in more expensive travel for consumers”.

However, JetBlue CEO Robin Hayes insists the combination would help his airline compete with the big four carriers, which would ultimately benefit consumers.

“You don’t have to choose between great service and low rates, you can have both,” Hayes said in an interview with CNBC.

JetBlue CEO Robin Hayes announced a surprise $3.6 billion bid for Spirit Airlines.

The surprise takeover bid shocked some Wall Street analysts, who questioned the merits of a merger between JetBlue and Spirit and predicted intense antitrust scrutiny.

The surprise takeover bid shocked some Wall Street analysts, who questioned the merits of a merger between JetBlue and Spirit and predicted intense antitrust scrutiny.

“When JetBlue flies into a market and competes with a legacy airline, overall fares drop more than when a super low-cost carrier flies against legacy airlines,” he insisted.

He says the combination would boost operations in key markets such as Florida and access to limited hub airports like Atlanta, Detroit, Miami and Chicago.

JetBlue said the deal, if completed, is expected to generate between $600 million and $700 million in net annual synergies and the combined airline is expected to generate annual revenues of approximately $11.9 billion based on 2019 income.

JetBlue, the sixth-largest U.S. passenger carrier, would operate Spirit under the JetBlue brand, Hayes said.

The offer could throw a wrench in a $2.7 billion merger plan between Spirit and Frontier, which in February announced plans to combine into the ultimate budget carrier.

JetBlue offered $33 per share all in cash, about 33% more than Frontier’s offer of 1.9126 shares and $2.13 in cash, which would value Spirit at $24.93 per share during Tuesday closing.

Shares of Spirit fell 2% to $26.37 in morning trading on Wednesday, well below JetBlue's offer price, suggesting investors were skeptical of the deal's completion.

Shares of Spirit fell 2% to $26.37 in morning trading on Wednesday, well below JetBlue’s offer price, suggesting investors were skeptical of the deal’s completion.

JetBlue stock fell more than 5% as investors appeared skeptical of the plan

JetBlue stock fell more than 5% as investors appeared skeptical of the plan

But shares of Spirit fell 2% to $26.37 in morning trading on Wednesday, well below JetBlue’s offer price, suggesting investors were skeptical of the deal going through.

JetBlue stock fell 5%, while Frontier stock fell less than 1%.

Although JetBlue and Spirit have a fleet dominated by Airbus SE, any potential cost savings from the deal will be diluted as JetBlue is expected to raise wages for Spirit pilots, who are in the lower range, the Raymond analyst wrote. James Savanthi Syth in a Note.

Moreover, any combination will likely invite antitrust scrutiny from President Joe Biden’s administration, which has taken a tough stance against mergers that could reduce competition and raise prices.

JetBlue and American Airlines Group Inc are already facing a US Department of Justice lawsuit over their Northeast Alliance.

Hayes told Reuters he expects a vigorous antitrust review from the U.S. Justice Department that could last until 2023.

“We’ve had unprecedented amounts of consolidation, which the DOJ has approved and now it’s about how do we make sure the rest of us can continue to discipline legacy carriers and create that competition,” he said. said Hayes.

“We think ultimately it’s the best deal that’s really going to drive competition.”

Hayes said the deal would make the New York-based airline a stronger competitor to the four traditional US airlines that control nearly 80% of the US passenger market.

“The number one complaint we get is why aren’t you flying to more places,” Hayes said in an interview with Reuters on Tuesday evening. “What we want to do is create a bigger JetBlue” that can serve more consumers.

Although both JetBlue and Spirit have Airbus SE-dominated fleets, any potential cost savings from the deal will be diluted as JetBlue is expected to increase salaries for Spirit pilots.

Although both JetBlue and Spirit have Airbus SE-dominated fleets, any potential cost savings from the deal will be diluted as JetBlue is expected to increase salaries for Spirit pilots.

Andre Barlow of Doyle, Barlow and Mazard PLLC said the Biden administration “is concerned about consolidation which could lead to higher prices.” This one has an impact on consumers, so I think it becomes difficult.

The Justice Department declined to comment.

The department filed an antitrust lawsuit last September against American Airlines and JetBlue over their partnership with the Northeastern Alliance, alleging it would result in higher fares at busy airports in the northeastern United States.

Hayes said JetBlue is “very committed” to its alliance with American, whether or not it was successful in acquiring Spirit.

Hayes said he expects litigation over the American Airlines alliance to be over before the Spirit deal review is complete.

Meanwhile, Frontier said it was “surprising that JetBlue would consider such a merger at this time given that the Department of Justice is currently suing to block their ongoing alliance with American Airlines.” American did not immediately comment.

Frontier said its Spirit offer “is in the best interests of consumers and shareholders and would save consumers $1 billion a year” and argued that a “significant overlap on the East Coast between JetBlue and Spirit would reduce competition and limit options for consumers”.

The Spirit-Frontier deal has come under fire from some lawmakers and public interest groups warning in March that a merger between the carriers “would destroy competition in the only competitive market segment of the highly consolidated airline industry”.

Spirit’s customer service has often been the subject of criticism and the airline canceled 35% of its flights on Monday due to weather concerns.

Analysts remain skeptical about the JetBlue takeover’s ability to pass regulatory scrutiny.

“We struggle with the idea (of a merger) given that both airlines are focused on the East Coast with significant operations in Fort Lauderdale, and we would suspect there will be a heavy regulatory pushback,” Brokerage MKM Partners said.

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