Frontier offers to purchase Spirit

AIRLINE INDUSTRY

The $2.1 billion offer back in play after three-year gap

Frontier Airlines has returned to the buying table with a $2.1 billion offer to buy Spirit Airlines. The companies failed to make a deal three years ago. LUKE SHARRETT — BLOOMBERG

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By Niraj Chokshi

The New York Times

Frontier Airlines is again trying to join forces with Spirit Airlines, three years after the companies failed to complete a proposed merger.

On Wednesday, Frontier said it was willing to pay $2.1 billion in stock and cash for Spirit, a deal that would unite the nation’s two largest budget carriers and could reshape competition in the heavily consolidated U.S. airline industry. But Spirit said it had rejected the offer, which was far less than the $2.9 billion merger that the airlines had announced in early 2022, while saying it would welcome further negotiations.

Spirit walked away from the 2022 deal in favor of a higher counteroffer from JetBlue Airways, which the Justice Department successfully blocked in federal court last year. After a string of setbacks, including a failure to renegotiate its debt, Spirit filed for bankruptcy in November.

Frontier, which made the newer offer to Spirit and its creditors Jan. 7, promoted a merger as beneficial both to the companies and to consumers.

“As a combined airline, we would be positioned to offer more options and deeper savings, as well as an enhanced travel experience with more reliable service,” Barry Biffle, Frontier’s CEO, said in a statement Wednesday.

In a securities filing, Spirit said it told Frontier on Tuesday that it would stick with its plan to restructure its finances in bankruptcy court but that it remained open to further talks.

Spirit’s CEO, Ted Christie, and chair, Mac Gardner, said in a letter to Frontier executives that the latest offer was too low. They also said that there was substantial risk associated with the deal and that Spirit’s creditors were unwilling to invest $350 million — a condition Frontier placed on its offer.

In the letter, the Spirit executives acknowledged the appeal of such a deal, but said the current offer was “both inadequate and unactionable.” They added that Spirit “would be happy to consider” other offers.

“Spirit’s response to the offer looks like a rejection but actually is an invitation to negotiate,” said Erik Gordon, a professor at the University of Michigan’s Ross School of Business. “Mentioning that you see the logic of a deal is a clear signal that you would like to talk.”

The U.S. airline industry has undergone substantial consolidation in recent decades, with the nation’s four largest carriers now controlling more than two-thirds of the domestic market. Those airlines have been notably successful in recent years, as the public emerged from the pandemic eager to travel, including buying more business and first-class tickets.

But budget airlines have had a more difficult time, in part because there is significant competition on many of their most popular routes. Spirit and Frontier have tried to adapt, including by selling packages to appeal to travelers willing to spend more than those looking for the lowest fares.