Mon. Mar 20th, 2023

The bickering between JetBlue Airways and Spirit Airlines is escalating, with both airlines appealing directly to Spirit’s shareholders today in a war of words that sounds more like a divorce than a possible marriage.

Earlier this week, JetBlue launched a $30-per-share hostile acquisition of Spirit after the ultra-low-cost airline’s board of directors made it clear that they prefer a less lucrative offer from fellow budget carrier Frontier Airlines of $21.66 in cash and stock for each share of the discount carrier. JetBlue added that it was willing to discuss a $33-per-share deal if Spirit will stop withholding diligence information about its business.

This morning, Spirit’s board urged its shareholders to reject JetBlue’s offer, citing regulatory hurdles for a JetBlue-Spirit merger due to JetBlue’s Northeast Alliance (NEA) with American Airlines.

“Spirit believes JetBlue’s proposals and offer are a cynical attempt to disrupt Spirit’s merger with Frontier, which JetBlue views as a competitive threat,” Spirit said in today’s statement.

JetBlue responded with its own statement. “The Spirit Board, driven by serious conflicts of interest, continues to ignore the best interests of its shareholders by distorting the facts to distract from their flawed process and protect their inferior deal with Frontier.”

The alleged “serious conflicts of interest” refers to Bill Franke, the current chairman of Frontier Airlines and the former chairman of Spirit Airlines. Franke, a newcomer to the Forbes World’s Billionaire’s List, has built his fortune investing in low-cost airlines. His private equity firm Indigo Partners has a controlling interest in Frontier and stakes in several budget airlines around the world, including Europe’s Wizz Air, Mexico’s Volaris and Canada’s Lynx Air.

“Regarding regulatory approval, Spirit would have you ignore the current regulatory climate to think that approval of their Frontier deal is assured. That is simply not true,” JetBlue said. “Both deals are subject to regulatory review, and both deals have a similar risk profile.”

JetBlue has a point, says Florian Ederer, associate professor of economics at the Yale School of Management and an antitrust expert. “The Spirit-Frontier deal raises questions about the merger of basically the two largest ultra-low-cost carriers. On the other hand, JetBlue is a somewhat differentiated, higher quality, low-cost carrier considering buying another low-cost airline.”

JetBlue has argued that acquiring Spirit would allow it to compete with the so-called “Big Four” U.S. carriers – American, Delta, United, Southwest — that together control nearly 80% of the market.

“Frontier offers less value, more risk, and no regulatory commitments, despite a similar regulatory profile,” said JetBlue’s statement. “We are confident that as we continue to share the facts directly with Spirit shareholders, they will be even more perplexed than they already are about why the conflicted Spirit Board has refused to negotiate with us in good faith. We believe that the Spirit shareholders will make their views known by voting against the Frontier offer and tendering their shares into our offer.”

“JetBlue’s bid is better for shareholders,” says Ederer, adding that neither deal has a clear path through antitrust regulators.

The government will consider other stakeholders. “Consolidation usually is not great news for consumers, unless there are large synergies and cost savings that can then be passed on,” Ederer said.

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