Frontier Airlines Will Purchase Spirit Airlines For $2.9 Billion In A Low-Cost Carrier Agreement

Frontier Group Holdings and Spirit Airlines Inc on Monday announced intentions to join in a $2.9 billion merger that would establish the fifth-largest airline in the United States and increase competition against traditional carriers.

The partnership brings together the stablemates of famed airline investor Bill Franke, a pioneer of rock-bottom prices combined with ultra-low-cost carrier top-up fees (ULCC).

These airlines are a rung below Southwest Airlines, which pioneered the low-cost model in the 1970s and has continued to grow at the expense of larger competitors throughout the COVID-19 pandemic.

The cash-and-stock agreement is expected to boost investment and help the companies compete with big US airlines including American Airlines Group, Delta Air Lines, Southwest Airlines, and United Airlines Holdings.

In premarket trading, shares of major US airlines gained by 1.3 per cent to 1.8 per cent.

According to the firms, the Frontier-controlled operation is expected to bring 10,000 direct jobs by 2026, as well as $1 billion in annual consumer savings and more than 1,000 daily flights to over 145 locations.

According to the carriers, the transaction value is $6.6 billion, which includes the assumption of net debt and operating lease liabilities.

Frontier, based in Colorado, will own 51.5 per cent of the combined company, while Spirit’s stockholders will own the remaining 48.5 per cent.

Spirit, which was valued at $44 per share before the pandemic hit in February 2020, was offered for sale at $25.83 per share, a premium of 18.8 per cent over the stock’s previous close on Friday.

The news comes as major US airlines forecast profit in 2022 as a result of improved vaccination rates and the reopening of economies following pandemic-related lockdowns and the introduction of new variations.

In premarket trading, Spirit shares were trading at $24.43, up 12 per cent.

Spirit and Frontier both fly Airbus planes, and in November, they took part in a 255-plane deal sponsored by Franke’s private equity firm, Indigo Partners, at the Dubai Airshow.

Franke will serve as chairman of the new airline, which has yet to be named.

(Adapted from Bloomberg.com)

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