In one of the biggest shake-ups of the US aviation industry in more than a decade, Spirit Airlines and Frontier Group Holdings have announced a “definitive merger agreement”.
If completed as planned, it will create America’s largest ultra-low fare airline. The combined business will offer more than 1,000 daily flights onboard its 283 aircraft. These jets will ply 650+ nonstop routes to and from 145+ destinations in 19 countries, representing a serious escalation in the battle for price-conscious passengers.
Responding to the news, Ted Christie, President and CEO of Spirit said: “We are thrilled to join forces with Frontier to further democratise air travel. This transaction is centred 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.
"We look forward to uniting our talented teams to shake up the airline industry while also continuing our commitment to excellent guest service.”
William A Franke, the chair of Frontier’s Board of Directors and the managing partner of Indigo Partners, Frontier’s majority shareholder, further noted that Indigo has a long history with both Spirit and Frontier, and is proud to partner with them in creating a disruptive airline: “We worked jointly with the Board of Directors and senior management team across both carriers to arrive at a combination of two complementary businesses that together will create America’s most competitive ultra-low fare airline for the benefit of consumers.”
The new structure
The board of the new combined carrier will comprise 12 directors (including the CEO), seven of whom will be named by Frontier and five of whom will be named by Spirit., with Franke the chairman of the merged business.
The deal is due for completion in "the second half of 2022" according to the companies, and is of course subject to regulatory review process and approval by other relevant stakeholders. According to the airlines, the management team, branding and headquarters "will be determined by a committee led by Franke prior to close [of the transaction]"
It is currently unclear how or when the two fleets will be merged, however both Spirit and Frontier are all-Airbus operators. The individual airlines each have orders with the European manufacturer, the majority of which are for the latest A320neo. Combined, the two firms have commitments for more than 350 new jets.
No specific details have been released regarding possible redundancies or down-sizing of teams, however the market statement confirmed that the combined company expects to deliver "annual run-rate operating synergies of $500 million once full integration is completed". The statement continues that this will be "primarily driven by scale efficiencies and procurement savings across the enterprise".
Talking financials
According to a market statement released this morning (February 7) by the two carriers, the terms of the merger agreement have been unanimously approved by the boards of directors of both businesses.
Spirit equity holders 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 February 4, 2022, representing a premium of 19% over the February 4, 2022, closing price of Spirit, and a 26% premium based on the 30 trading-day volume-weighted average prices of Frontier and Spirit.
The transaction values Spirit at a fully diluted equity value of $2.9 billion, and a transaction value of $6.6 billion when accounting for the assumption of net debt and operating lease liabilities. Upon closing of the transaction, existing Frontier equity holders will own approximately 51.5% and existing Spirit equity holders will own approximately 48.5% of the combined airline, on a fully diluted basis.
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