Frontier Makes New Bid to Merge with Bankrupt Spirit Airlines

Frontier Airlines has made yet another bid for bankrupt Spirit Airlines, three years after the ultra-low-cost carrier snubbed a previous offer from its competitor.

Frontier has offered Spirit stakeholders $400 million in debt and a 19 percent stake in its business, valuing the bid at $2.16 billion. Spirit creditors would also have to commit to finance $350 million of investment in the struggling airline.

Merger would create 5th largest U.S. airline

Frontier chairman Bill Franke said the bid is a “compelling opportunity” that would offer more value to Spirit stakeholders than the airline’s current restructuring plan “by creating a stronger low-fare airline with the long-term viability to compete more effectively and enter new markets at scale.”

The merged companies could be the first ultra-low-cost (ULC) airline big enough to compete with the “Big Four” carriers (American, Delta, Southwest, and United), Frontier argued to Spirit’s board.

Photo: Courtesy of Frontier Airlines

The combined carrier would overtake Alaska Airlines as the U.S.’s fifth largest and “within a few years” could command a fleet of more than 400 planes and serve 100 million customers annually. In 2023, Spirit had 44 million passengers, while Frontier had 30 million.

Travelers would benefit from “more low fares,” with potential savings in the billions compared to the ticket prices charged by the Big Four, Spirit claimed.

“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,” Frontier CEO Barry Biffle said.

The Department of Justice (DOJ) has previously expressed concerns that a merger between the U.S.’s two biggest ULC carriers could hurt competition and push up ticket prices.

Photo: Courtesy of Denver International Airport.

Frontier criticized Spirit’s recovery plan, which calls for offering more premium services to attract high-paying customers, as risky. That’s despite Frontier itself pivoting toward premium in-flight experiences, including installing first-class-worthy seats in the front row of its airplanes, similar to Spirit’s “Big Front Seats.”

Spirit says no but hasn’t closed the door

Spirit hasn’t been yet swayed by Frontier’s arguments and has rejected the latest offer as “woefully insufficient financially.” In particular, Spirit objects to the deal’s demand for $350 million in new funding and says the bid doesn’t account for the risks and costs of a merger.

Spirit also said the offer is far below the deal Frontier and Spirit reached last summer and fall, for $580 million in debt and 26.5 percent of equity, from which Frontier “unilaterally walked away.”

However, Spirit hasn’t closed the door and says it’s open to a higher bid, provided Frontier can provide assurances it won’t back out again.”

Photo: Courtesy of San Diego International Airport

“Should you wish to make a revised proposal that is, in fact, capable of closing and addresses the material deficiencies… we would be happy to consider it and again work to activate our stakeholders to do so as well,” Spirit wrote in a letter to Frontier.

Spirit filed for Chapter 11 bankruptcy protection in November after losing more than $2.5 billion since the beginning of 2020 and facing colossal debt payments of over $1.6 billion over the next 18 months.

Spirit previously looked to JetBlue for rescue. The New York-based airline—which splits the difference between budget and legacy carriers—made an all-cash offer for Spirit for $3.8 billion three years ago. Spirit jilted Frontier, which had also made an offer for the airline in 2022, only to see the JetBlue acquisition blocked by a judge on antitrust grounds.

Spirit’s independent restructuring plan, already approved by a majority of creditors, will allow it to emerge from bankruptcy next month, the airline said.

But Frontier questions how long the rescued airline will be able to survive on its own two feet.

The markets still think a deal might be made between the two carriers: shares in Frontier are up 7.5% since Wednesday.