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Spokane, Washington  Est. May 19, 1883

Spirit Airlines rejects new merger offer from Frontier

By Aaron Gregg and Lori Aratani washington post

Frontier Airlines renewed its courtship of bankrupt Spirit Airlines with an offer to merge and create one large low-cost carrier, but Spirit quickly rejected the overture Wednesday and said it will stick to its goal of going it alone and emerging from bankruptcy early this year.

Under the deal proposed earlier this month and detailed Wednesday in securities filings, Frontier would issue $400 million in new debt that would be held by Spirit investors, who would also get 19 percent of Frontier’s stock. Spirit would sell $350 million of stock to handle its current debt, according to the terms described in a filing with the Securities and Exchange Commission.

But Spirit decided not to delay its planned emergence from Chapter 11 bankruptcy, effectively rejecting Frontier’s offer, according to the filing. Spirit said that “the proposal would deliver less value” than its current plan and that it “is uncertain as to timing and completion, including the need for regulatory approvals.” Spirit’s stakeholders were also unwilling to raise the $350 million spelled out in the offer, Spirit said.

Still, some analysts think that a merger of the two airlines is a logical step for both and that they may eventually strike a deal if the financial terms can be worked out.

“These are all points that will have to be negotiated, and I expect that they will be,” said Henry Harteveldt, an aviation analyst and president of Atmosphere Research. “I think that we will see a deal announced within the next few months and possibly quite sooner.”

Spirit would continue to face the same market headwinds as a stand-alone airline, analysts say. It will take time to see if its effort to retool offerings to appeal to customers looking for a more premium experience will be successful. Combining with Frontier could give it an important boost.

“Being a bigger carrier certainly has merits and being a bigger carrier doing pretty much what you do today, except doing it at a bigger scale and with some synergies, this has merit,” said Robert Mann, an aviation consultant with R.W. Mann & Co.

The two airlines had originally planned to merge in 2022, but JetBlue emerged with a competing offer, which was subsequently opposed by the Justice Department under the Biden administration and blocked by a federal judge. Spirit, known for keeping base prices low while tacking on fees for carry-on bags and minor amenities, has struggled to right itself after the pandemic hit the travel industry in 2020 and 2021.

Travelers’ tastes also have changed, with more willing to pay for premium perks including extra legroom and priority boarding. Larger carriers have been able to lure some of their customers away with no-frills basic economy fares. In response, Spirit and Frontier have sought to retool their business model with offerings including roomier seats, empty middle seats and early boarding.

Last year, Spirit embarked on various cost-saving measures, including cutting jobs, furloughing pilots and delaying aircraft deliveries. In November, it filed for Chapter 11 bankruptcy, known as a reorganization.

Reached for comment, both airlines referred The Washington Post to their published statements. In a Wednesday statement, Frontier chief executive Barry Biffle argued that a combination of his airline and Spirit would be able to offer more options, deeper savings and better service. Frontier argued that Spirit will be unlikely to succeed on its own.

Spirit’s current plan to emerge from bankruptcy is expected to be complete in the first quarter of 2025, pending a Feb. 13 hearing, Spirit said Wednesday.

Analysts said that should the two carriers reach an agreement to merge, they are likely to face a friendlier regulatory climate. Under the Biden administration, mergers in highly concentrated sectors including the airline industry were often challenged. The Biden administration successfully undid an alliance between American and JetBlue that was approved in the waning days of President Donald Trump’s first administration and also prevailed in it effort to block the merger between JetBlue and Spirit.

Chris Sagers, a law professor at Cleveland State University, said the Spirit-Frontier deal is too complicated to be viewed as purely an antitrust issue. Mergers in airlines are not necessarily about market share but about the number of airlines flying specific routes, he said. Sagers added that “it is absolutely true that firms in every sector all over the country are currently expecting and hoping that merger enforcement will be more relaxed” in the new administration.

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Shannon Najmabadi contributed to this report.