Spirit’s Questionable Move to Shun JetBlue for Frontier

JetBlue, Mergers/Finance, Spirit

I’ve said it here before; I do not get this JetBlue/Spirit merger plan. That, however, is completely irrelevant when it comes to saying whether Spirit should accept JetBlue’s offer or if it should go with Frontier. If I were on Spirit’s board, I would take the JetBlue offer in a heartbeat, but the board has chosen a different path even after JetBlue upped the protections in its offer. Spirit says Frontier’s offer is better, because the JetBlue deal might fail to pass antitrust review. I’m curious just how many shareholders would disagree with that sentiment.

From a pure compensation perspective, JetBlue’s offer for Spirit is far superior to Frontier’s. JetBlue’s offer is for $33 per share in cold, hard cash. Frontier’s offer is for $2.13 per share in cash but then 1.9126 shares in the new company for each share of Spirit held. The stock price varies a lot, but at last check yesterday it was at $21.40, so if that holds, it’s $23.53. That means the JetBlue premium is about 40 percent higher right now.

Wall Street certainly loves this deal, because when Spirit shot it down, its stock tanked nearly 10 percent. Though to be clear, Wall Street only loves this deal in one direction. JetBlue saw its shares rise more than 2 percent on the hopes that this deal won’t happen. Today’s perspective, however, isn’t about JetBlue. It’s about Spirit since that’s the airline that holds all the cards.

In a letter that JetBlue sent to Spirit last Friday, it upped its offer and had some pointed words for Spirit.

Acquiring Spirit has been a strategic objective of JetBlue for many years and, as such, we were disappointed that the Spirit Board of Directors (the “Spirit Board”) elected not to have any discussions with us prior to the announcement of Sprit’s transaction with Frontier Group Holdings, Inc. (“Frontier”). This lack of engagement regrettably resulted in Spirit entering into a transaction with Frontier that clearly does not maximize value for Spirit’s stockholders.

In other words, JetBlue was waiting for Spirit to call, and it never did. I’m told there were no formal discussions prior to this current offer, but the way this is worded makes it sound like Spirit knew JetBlue was happy to chat. But that’s all water under the bridge anyway. The bigger issue is how it’s going now. JetBlue cites several issues, but this sums it up nicely.

By not receiving access to the basic diligence information that was provided to Frontier, and that we requested in order to finalize a proposed transaction, we firmly believe your stockholders are being disadvantaged.

JetBlue is trying to position this as an effort by Spirit’s board to create an unfair playing field and biasing its decision toward the Frontier merger. Whether that’s true or not isn’t known, but the outcome here is quite perplexing.

The reality is that JetBlue’s offer requires absolutely no faith in the strategy or success of any merger plan whatsoever. If it did, I’d probably feel differently. But this is pure cash. If I’m a shareholder, give me the money and I will walk away happy, not caring what you do with the airline once I’m gone… much happier than with Frontier which would require the airline to perform insanely well to get its stock up to a point that would make me whole. That’s not happening anytime soon.

The one major concern if I’m a shareholder is whether or not this deal with JetBlue can actually be completed or not. Will it pass antitrust review? Will anything? The government is pretty unhappy with mergers these days in general, and it will try to find a way to stop anything it can.

JetBlue has presented a whole bunch of arguments as to why its proposal is better suited to earn government approval than Frontier’s, but it has also put some hard measures in place to help make Spirit feel even more comfortable.

  • JetBlue will pay a $200 million reverse break-up fee if the government shoots down the merger on antitrust concerns. Frontier has no reverse break-up fee in the merger agreement.
  • JetBlue “will proactively offer to the DOJ a remedy package that contemplates the divestiture of all Spirit assets located in New York and Boston… as well as gates and related assets at other airports, including Fort Lauderdale.”
  • JetBlue says it will go even further than that, offering to divest assets “up to a material adverse effect on Spirit, with a limited carve-out to this divestiture obligation for actions that would represent a ‘Burdensome Condition’ under JetBlue’s Northeast Alliance.”

This sounds pretty good to me. Spirit gets to take the money and run. And if JetBlue can’t get the deal done thanks to the feds, Spirit walks away with $200 million. You think Bill Franke, the architect of the Frontier/Spirit merger isn’t going to be there waiting for a deal if that happened? He might try to cut down the price as punishment for Spirit straying, but ultimately if he wants the deal for Spirit now, he should want it if the JetBlue deal fails to pass review later.

Despite all this, Spirit put out a press release saying, “nah, we’re good.”

What it really says is that the board has unanimously agreed that it thinks Frontier’s is a better deal. And why? Well, “the Board determined that the JetBlue proposal involves an unacceptable level of closing risk that would be assumed by Spirit stockholders.”

In a sense, I get this. It’s not anything that would make rational sense, but the feds absolutely hate American, Delta, and United. So, if the feds can find a way to use the Spirit merger approval to break up the American/JetBlue Northeast Alliance, I’m sure they would do so. And if JetBlue decided that was too much to ask, it could sink the deal. But even this is a stretch, and remember, worst case scenario, Spirit walks away with $200 million and can run back into Frontier’s arms.

I really don’t understand Spirit’s rationale here. If I’m a stockholder, which I’m not, I’m really unhappy about this. I can imagine lawsuits flying over this one, because it’s just a lot of money left on the table.

51 comments on “Spirit’s Questionable Move to Shun JetBlue for Frontier

  1. From what I’ve read Spirit and their lawyers have looked at the landscape and have predicted that the DOJ won’t allow JetBlue to purchase Spirit with the NEA intact. JetBlue on the other hand has said they won’t give up the NEA come hell or high water, so Spirit’s lawyers predict the purchase won’t go through. Additionally, given that Spirit tends to offer lower fares than JetBlue the DOJ also will be looking at that and how it’ll negatively affect consumers. I guarantee there is an analysis going in depth on this waiting to be filed in court if Spirit is sued by their shareholders.

    In the interim, there is also the strife on employees wondering what’ll happen, that has to cause some bit of stress.

    Also Jetblue, banding about the term “JetBlue Effect” seems like they dropped in at a Southwest and FAA party and drunk too much of the kool aid.

    1. Oh, and FWIW that $200 reverse breakup fee seems low for Spirit to waste the time and energy on getting bought by JetBlue. I imagine the Spirit management also feels a bit insulted.

      1. It’s not huge money as these things go, but as Brett points out if the JetBlue-Spirit merger were to fail, it’s free money and Spirit can go ahead with the Frontier merger.

      2. Spirit could have countered B6’s offer and required a $500M break up fee paid in 1 year if the deal is not closed. Most surprised Spirit didnt leverage B6’s offer and make Frontier improve its offer. I agree there is no way the DOJ would approve the NEA and Spirit merger together.

        1. FWIW, it looks like Spirit negotiated with JetBlue to change their offer, and JetBlue couldn’t come up with an offer that Spirit thought was reasonable.

    2. Also JetBlue, banding about the term “JetBlue Effect” seems like they dropped in at a Southwest and FAA party and drunk too much of the kool aid.

      I guess I wasn’t the only one to notice that.

  2. I realize the American Way is to disregard anything but the stock market and shareholders. Employees and customers be damned. But JetBlue’s operation and reliability are horrible. And now they want to grow? How about fixing their own house first…

    1. I don’t think a JetBlue acquisition would involve layoffs other than headquarters staff – they want the planes and the crews, even if they change the route map.

      1. It’s still damning the crews, because if you change the route map, you’ll likely need to change the bases, which means you’ll require people to move or commute.

  3. As long as a Democrat is in the White House, Senator Schumer et al will assure that JetBlue will flourish. He has the political horsepower to mitigate the DOT and DOJ. But JetBlue must make this happen quickly. Time is of the (political) essence for them.

    As Mr. Snyder noted, the Spirit Board’s singular reason for declining JetBlue’s considerably superior offer is suspect. It makes one wonder about its true relationship with Indigo Partners. It suggests that Mr. Franke already controls Spirit and that the closing of their acquisition is an after-the-fact transaction. This relationship deserves additional scrutiny.

    1. Good point. I didn’t consider that when I read this story.

      Now here’s another idea for us to think about… Spirit merges with Frontier, then JetBlue either goes after Allegient or attempts to take out the entire merged frontier in one swoop. Not saying either is certain, but the various possibilities need to be explored. To me personally it should be JetBlue & Alaska & build up the middle from each coast to have the most effective network.

      1. Allegiant would give JetBlue the A320 family jets and pilots that I think are the primary motivation to the move on Spirit, but I think JetBlue also wants big parts of the route network in the mid-continent and the west. I don’t think they’re really interested in some of Allegiant’s destinations (St. Pete-Clearwater, Punta Gorda, Phoenix-Mesa, Orlando-Sanford just off the top of my head) and the LTD model for the most part.

        As for JetBlue snapping up a combined Spirit-Frontier, that would be a much harder antitrust sell than just Spirit.

        From a route map perspective, Alaska looks like a good fit, but I don’t see Alaska being interested, I don’t think JetBlue wants the intra-Alaska network, and there’s the fleet-complexity issue.

        In hindsight, JetBlue should have fought harder for Virgin America, but with the landscape the way it is now Spirit is the best choice. The alternative is to try to grow into new markets without a merger, but that’s a harder road to travel, even with the A220s coming in.

        1. JetBlue would not be the acquirer in a potential tie-up with Alaska anyway. Alaska’s market cap is double that of JetBlue, and Alaska is much larger. Alaska finally achieved their goal of a single Boeing fleet and probably wouldn’t want B6’s Airbus/aging Embraers.

        2. AS over spent for Virgin America’s assets, so no reason B6 should have offered more. B6 can easily grow mid-continent if it wishes since gates are easily available. JetBlue’s management should have the airline already in cities such as CMH. Instead, B6 has decided to focus on EWR and London instead.

          1. B6 was in Columbus at one time, but they’ve left. If anything I think B6’s problem is they’re not willing to spend the time and money to invest in new markets.

      2. Since Mr. Franke used to control Spirit, a fair question would be: “Is Indigo Partners’ repurchase of Spirit (through Frontier) a true arms-length transaction?” The fact that Spirit’s Board’s refusal to even discuss JetBlue’s superior (to the common shareholders) offer just doesn’t pass the smell test. The Board’s biggest job is to provide a maximum return to the Shareholders. Clearly, JetBlue’s offer is superior to Frontier’s. But JetBlue’s offer is also a death knell to Indigo’s ULCC consolidation and domination plans. That’s why this relationship between Indigo/Frontier/Spirit warrants closer inspection. We need to know the nature of their relationship(s) to see what’s really going on here.

        1. Thanks Masters for bringing up this point, it shows there’s something that isn’t quite right & begs the question… does Indigo have inside information that JetBlue doesn’t have. As you said, it doesn’t pass the smell test.

          1. Indeed. I don’t know the Spirit Board’s motivations, but if JetBlue wants to overpay in cash for my airline, I’m going to try to make that happen.I really don’t care what happens after I get my money. And, heck, I suspect even the employees are probably better off selling to JetBlue.

  4. https://www.bloomberg.com/opinion/articles/2022-05-02/twitter-s-board-gave-up

    Bloomberg argues a similar thing here, Twitters board said “yeah, we good, give us the cash, and ignoring the potential future profits and ….” But if it had said “we declined Musk’s offer because we think it is bad for users and the product, and we think that if we continue to improve the product and user experience then in the long run this obviously important social network should be worth more than $54.20 per share,” that would have been a defensible position even if, like, three-year earnings projections did not really support a $54.20 price.”

    1. The thing is, these are two different things. The sale of Twitter still keeps Twitter as Twitter. It’s not only about what’s best for shareholders but also for everyone else since Twitter will continue to exist. In theory if you take the whole into account, that will be better for shareholders anyway.

      With Spirit, it’s gone. This is a pure acquisition by JetBlue. Here’s cash, now go away. So the strategy really doesn’t matter to Spirit. If you want to think about employees, sure. JetBlue presumably will pay more. There are a few ways to look at this, but it’s much more black and white than something where the acquired entity will continue to exist.

  5. A few thoughts.

    This whole situation is getting more and more interesting. The more I look at the possibilities of a JetBlue/Spirit combination, the more intrigued I become with it.

    A quick comment on the stock market. The moves in both JetBlue and Spirit’s stock is pretty normal in merger scenarios. The acquirer’s stock usually goes down, while the potential acquiree’s stock zooms up close to the price the acquirer has offered. In plain English, the stock market tends to overreact to news, at least in the short term.

    In spite of all the angst, there are no guarantees that any of these proposed mergers will get stopped. Don’t forget that the DOT isn’t the old CAB. It doesn’t approve or reject mergers. It merely studies their impact for the DOJ. The Department of Justice then has to sue to stop the transaction. It can’t simply turn it down. The language used in airline blogs often implies that the DOJ can automatically block a merger. That’s not the case. Even if the “feds” hate American, Delta, and United, it still has to win in court to block a merger. And that’s not guaranteed. Moreover, any “victories” the DOJ achieves in court can be appealed for years. I really think a lot of these regulatory concerns are overblown. In my opinion, which admittedly could be wrong, neither of these possible combinations won’t change the competitive landscape as much as some apparently think. It’s not like United and Delta are trying to merge.

    It seems to me (and I’m not an expert) that most of the “new” concessions JetBlue made were probably baked into the original offer, at least in theory. In most mergers, overlaps are rationalized, and concessions are offered to avoid lawsuits. It would be quite easy to sell Spirit’s LGA slots to Frontier. And if past is prologue, the “new” JetBlue would probably reduce duplication in South Florida.

    Spirit’s rejection could simply be a ploy to up the ante. Its Board has a responsibility to the shareholders to get the best deal possible.

    1. I’m not sure LGA slots can be sold (can anyone confirm?) They might have just be surrendered for reallocation, which could mean being offered to new entrants. I can’t see Avelo wanting them, but Breeze might be interested, or a Canadian entrant with service from a pre-clearance airport (Flair, Porter if they accelerate the start at Toronto Pearson they’re planning for the E195-E2s arrive), or even WestJet if they dedicate the new slots to a new destination.)

      Or as you say, it could just be a move to get JetBlue to pony up more cash.

      1. Craig – They can’t be sold, so they would just go back for reallocation to specific new entrants, or that’s usually how this goes.

        1. Thanks for the clarification CraigTPA and CF. I’m guessing Frontier would probably be the front runner in a reallocation process. But who knows?

            1. Probably, but I believe the way these things are done is to offer them to new entrants first, and then to existing airlines if they’re not taken up. The pool of new entrants is pretty small, but if none of them took the slots, Southwest and Frontier would be the most likely choices unless Air Canada or Westjet wanted to introduce a new city (for example, Quebec City, or Montreal for Westjet, which would improve competition.)

              I think Frontier might have the edge here, if for no other reason than they’re smaller at LGA and it would enhance competition better. (Southwest’s spectacular failure at EWR might also be taken into account.)

  6. It sure seems to me that Spirit’s board has some hidden ties to Indigo/Frontier, and they are playing favorites for themselves, rather than simply acting to provide the best financial outcome to their shareholders.

    On a different note, as a person who travels extensively, I have flown multiple times on every airline in this country. All of them, from American and Delta to Southwest to Allegiant/Frontier/Spirit to Southern Airways, Boutique Air, and the dearly departing Air Choice One. Just in general for the consumer, it will be better for the JetBlue purchase to go through. Why? Because JetBlue is relatively unique, between the legacies and the ULCCs. If Spirit disappears, we still have Frontier, Allegiant, Avelo, Sun Country, Breeze…the list goes on. But we really have only two airlines are neither legacies nor ULCCs, and those are JetBlue and Southwest. And JetBlue’s product is superior to Southwest, and cheaper too.

    1. Yeah, for all of the talk about how far JetBlue has fallen, at least they’re still cheap–Southwest is now providing a barely better than ULCC product at higher than legacy carrier prices.

      1. “Southwest is now providing a barely better than ULCC product at higher than legacy carrier prices.”

        Uh, how many ULCCs don’t charge for the first checked bag, have 32″ pitch in economy and have no fees for carry ons? Not to mention that you get as much of a snack on WN as you would on any of the big 3 in economy. Need to change your ticket? No problem, just pay the difference in fare. And they have a very practical and useful FF program. OK, they don’t have “first class” – but so what? Most of their routings are in the 1-3 hour flight range anyway. Really, their only glaring omission is the lack of in seat power.

        So yes, I call BS on this part of your comment.

        1. I care a lot more about the terrible southwest boarding process, and the fact that, unlike the ULCCs, I can’t even get the seat I want if I’m willing to pay for it, than I do about the lack of fees for checking a bag, as I almost never check a bag for the short-haul trips southwest specializes in.

        2. Southwest doesn’t have entertainment. They don’t have power outlets. Their boarding process is a zoo and if you don’t pay extra to board first, you get a middle seat in Row 77. Good luck finding seats together for people traveling together either.

          But my one of my biggest peeves is this idea that they don’t charge change fees. Right. They don’t. But if you change within anywhere near the departure date, the only way to change is to pay full fare…which on Southwest is very often MORE than what the legacy guys charge. It’s a sleazy bait-and-switch. You buy the $129 fare…then you want to change? Sure, we don’t charge change fees. But the fare on your new flight is $359. Fork it over.

          Their product is NOT any better than the likes of Allegiant or Spirit.

          1. Southwest has entertainment. Movies and live TV are available for streaming to your own device. But as you point out, the lack of power is an issue.

            Major airlines have eliminated change fees too, but their fare rules are more complex. Depending on how it’s done, you can easily end up in the same situation where you’re still paying the fare difference to the currently available fare, which at the last minute is typically high as well.

            I’ve never paid for early bird and recently seem to end up with a mid-B boarding positions. I’ve still been able to get a window seat; I don’t care terribly much were on the plane it is. I actually scored 1F on my last flight.

      2. This is very anecdotal, and may just be the routes that I look at, but I get the sense that over the past 3+ years WN has maintained a higher “floor” on airfares than most of the legacies… By which I mean that even during sales, flexible dates, etc etc WN’s fares never seem to be THAT low (even when they are the cheapest on a route), or at least not as low as other airlines sometimes drop their fares during non-peak times.

        However, I’m not so sure that the reverse applies; WN sometimes seems to price its seats for peak times on the higher end of the market, especially when looking well in advance (e.g., when shopping in September for flights around the Christmas holiday, WN’s fares may be on the higher end of the spectrum relative to the competition).

        Again, might just be my imagination, or the routes that I shop for, but that’s what I see when I look for flights. I’m sure someone with data to fare buckets etc could prove/disprove this pretty easily.

    2. John G,
      Southwest is profitable. JetBlue is not. Low fares only matter if they are from a company that can sustainably remain in business offering those fares.
      B6′ problem is that it has no Chicago Midways, Houston Hobbys or Dallas Love Fields where it can price just about as much as it wants. All of the legacies, Alaska included, have hubs where they have the majority of traffic. JetBlue has none of that but instead has a very competitive network. Of course, their fares are lower but so also are their profits. Track B6′ profits against DL’s growth in BOS and the correlation will be stunning.

  7. This is both a blessing and a curse for B6. On one hand, B6 leadership doesn’t seem competent enough to integrate another carrier into itself; it can’t even manage its own operations and has even prompted the pilot’s union to voice a vote of no confidence in Alex Battaglia (VP Sys Ops and Airports). B6 is also the only airline which will fail to be profitable in Q2 2022. B6 will be taking the best parts of NK (low cost structure) and adding its higher cost structure to its fleet which will prevent B6 from ever achieving the margins that made NK so attractive to begin with.
    On the other hand, what is JetBlue’s place in the market with a strengthened NK/F9? B6 becomes the 7th largest carrier with a cost structure quickly growing out of control, failing to offer the low fares of F9/NK, G4 and others, while simultaneously failing to get the revenue premiums of the majors. They’ll be getting pressured from above and below. It seems like JetBlue’s niche as the low fare, boutique darling of the industry is rapidly fading with unreliable operations, and a lack of strategic direction. As B6 continues to rapidly develop the NEA while only slowly growing its fleet, it’s being forced to reduce flying in markets which were previously strategic priorities: BOS, LAX. DL is going to be bigger in BOS this summer and likely smells blood in the water, and B6 will struggle to get back the gates it must be sacrificing in LAX by pulling down so much capacity.
    You can sense JetBlue’s desperation to get this deal done by reading their press releases and letters to Spirit’s board and management. Especially since a failure to acquire NK would be 2 failed acquisitions for Robin and Joanna, and could place both of their jobs at risk.

  8. The JetBlue/Spirit merger was an attempt by JetBlue to stop the marginalization of the New York based airline that has been in process for most of its 20 years, largely because B6 was created not by market forces but by the will of politicians that ultimately cannot counter the market. B6 was created to bring low fares to NYC, then a fully limited access market because of slot controls, and B6 thrived for at least a decade in NYC because it brought a quality low fare product to the US’ largest travel market. Notably, B6 had a substantial advantage over other low fare carriers with NYC slots and low costs that made it hard for anyone to come after it. As Delta built its twin hubs at LGA and JFK and fresh off of chapter 11, B6 began to face real competition even as AA slowly pulled down its own JFK presence and then later wobbled at LGA. B6 got a huge shot in the arm with DL and US’ decision post 9/11 to pull down BOS with B6 using the very gates that DL vacated to build its own new terminal.
    During the late 2010s, all of that changed as DL started to grow BOS using the same formula it had used in SEA with AS. Unlike AS, B6 kept pushing its operation to generate more revenue and saw its operation deteriorate so that B6 is increasingly losing its most loyal passengers who see better total value including reliability from other carriers.
    Add in that the growth of ultra low cost carriers has particularly hit low cost carriers that do not have the premium revenue opportunities of global carriers, and B6 was increasingly being marginalized as has been seen in FLL where NK became the largest carrier, surpassing B6.
    The merger of NK and F9 presents the real possibility that what has happened in FLL could happen nationwide – and B6 management had no choice but to quit trying to rely just on growing “up” in the food chain via the Northeast Alliance and transatlantic flights but also compete better “down” in the market against ULCCs. Its answer was to acquire and dismantle Spirit while trying to preserve the NEA. Everyone can see B6’ desperation and the anti-competitive nature of its merger and parts of the NEA. Few, however, have recognized that B6’ very future is on the line esp. with Spirit’s rejection of B6’ offer.

  9. “I can imagine lawsuits flying over this one, because it’s just a lot of money left on the table.”

    This would be pretty much guaranteed to go nowhere. The “business judgement rule” is very well-established Delaware corporate law, and as long as the Spirit board followed a reasonable process set up by their lawyers in making this decision, they aren’t at any significant risk of losing a lawsuit. Delaware judges aren’t going to second-guess the board’s judgement about the likelihood of this deal getting regulatory approval.

    1. Yep. If they take defensive measures then they might get a little more scrutiny. But it’s not like NK’s lawyers don’t know that.

      Still, I look forward to the lawsuits. They’re always interesting.

  10. Everything outside of the airplanes JetBlue flies (not the hard or soft product) is abysmal on them. Their operation from reliability, IT, to IROPs handling is just atrocious. The company needs to do a top down review of everything and get its own house in order before trying to snuggle up to bridezilla.

    1. Totally agreed. They rely so much on their onboard product to distract from the glaring issues elsewhere. Now that the company has grown up and has almost 1/2 of its network in NYC, the cracks are growing. Eventually people won’t care about the snacks, TV and wi-fi if they have no faith in their flight departing on time (or at all), especially since other carriers are catching up with their onboard offerings. They canceled close to 9% in April!

      1. Agreed. The former bulwark provided by PTVs is quickly fading. Other airlines now have PTVs as standard. Watching a movie or a show on a iPhone or iPad is now an option that wasn’t one 20 years ago. Finally, live TV sucks a lot more. Far too many commercials etc.

        As for snacks, they’re barely a differentiator. You either know your getting pretzels and are okay with that or you bring something from the ground.

  11. I think this was a smart move from a board thinking about long term effects and value. Sprit will be worth more to investors long term if its assets are bought by a company with a competent plan to use them. Frontier also represents a better long term value fit for employees since it’s less likely to result in big layoffs for either redundancy or if the new owner has to cut their losses on a failed integration. Of course the street acted on the short term view of dollars in pocket when the merger closes on this announcement but future growth potential in the preferred merger will outstrip that on a longer horizon

    1. “Spirit will be worth more…” – this should be “Spirit MIGHT be worth more…”

      To compare the two offers, an investor has to take assumptions of what the combined company stock will be worth in the future, calculate the present value of that projected worth, add the $2.13/share they’d receive in cash now, then compare that amount to the $33/share JetBlue is offering now.

      If “FrontSpirit” grows substantially and maintains strong cost control, then it’s entirely possible that you’re right and they’d be better off with the Spirit/Frontier merger. But this involves a lot of forecasting and when professionals do this they’ll usually take a fairly conservative approach.

      I think that it’s entirely possible that the “Spiritier” deal could be better for stockholders than the JetBlue offer, but there’s no way to be certain without seeing a detailed nerd-wrestling* of the numbers and the assumptions used.

      * – hat tip to the late and sorely missed P. J. O’Rourke for this term

  12. Respectfully CF, I think you err in your thought process here:

    “The reality is that JetBlue’s offer requires absolutely no faith in the strategy or success of any merger plan whatsoever. If it did, I’d probably feel differently. But this is pure cash. If I’m a shareholder, give me the money and I will walk away happy, not caring what you do with the airline once I’m gone… much happier than with Frontier which would require the airline to perform insanely well to get its stock up to a point that would make me whole. That’s not happening anytime soon.”

    Spirit used to be an $80 stock. Keep that in mind when looking at the dollar figures currently on the table.

    A Spirit + Frontier combination would be an absolute beast of an airline – Ryanair-esque.

    Spirit shareholders would be getting shares in the new combined Spirit + Frontier.

    You assume that Spirit shareholders should be happy with $33 per share now. I think the upside in the future of the combined Spirit + Frontier is much, much higher than JetBlue now.

    Why rush to exit at $33, when if you hold and Spirit + Frontier passes, you will likely make out like gangbusters in a few years once we are back at cycle peaks?

    It’s as simple as that, in my opinion. The other stuff (breakup fee, etc) is ancillary (no pun intended). Missing the forest for the trees, in my humble opinion.

    1. It’s funny you say this. I actually have a counterpoint that I’m writing up that talks about this and others. I can see how Spirit can get to a different place. I just don’t agree with it. Look for that next week.

  13. Any merger with Spirit looks a little more dicey given that they reported a hefty loss – in line with the poorer performing airlines in the industry – for the first quarter.
    They are also guiding to a loss in the 2nd quarter; the only airline that is guiding to a loss in the 2nd quarter is JBLU. Frontier has not yet reported its financial results or provided guidance for the 2nd quarter.
    Spirit says it will pay close to $4/gallon for jet fuel in the 2nd quarter, the highest of any airline that has provided expected fuel costs for the 2nd quarter (which we are now almost halfway through). JetBlue is right behind them but that is a little more understandable for them given the high fuel prices in the NE where JBLU has so much of its operations.

  14. Last quarter’s financial performance, next quarter’s investor guidance, the past market price of a company’s stock, and current market capitalizations have nothing to do with the long-term viability or efficacy of a potential merger. As investment prospectuses often warn, “Past performance is no assurance of future results.” I can see the pros and cons of any of the possible combinations among the three airlines in question – even one that might involve all three.

    But maybe that’s a bridge too far. LOL

    I really believe (and it’s only my opinion – which obviously goes against the “conventional wisdom” – a position I like) that a JetBlue/Spirit merger will enhance the possibility of the NEA going through, not threaten it. That’s because a merged JetBlue will be a stronger national competitor with its increased presence outside the Northeast.

    I know I’m also repeating myself when I write that I believe there’ll ultimately be a settlement of the DOJ lawsuit regarding the NEA regardless of the outcome of any potential mergers. No one knows how a judge will rule, and the time and expense of years of litigation can be bad for everyone concerned. All the NEA does is consolidate the competition in New York. Another reason: American simply doesn’t have enough slots to divest at LGA (which is where the LCCs and ULCCs apparently want to be) to make a significant impact. The real competition at LGA and JFK is between the NEA and Delta, and divesting a few slots to Frontier, Westjet, Avelo, Breeze, et. al. really won’t change that dynamic. LCCs and ULCCs aren’t charities. They’ll charge what the market will bear in spite of their lower costs.

    I want to be fair about how I word this, but I still find it a bit troubling that peoples’ rhetoric often makes it seem as if they’re celebrating when people’s lives and businesses are adversely affected by the events of the day. But that seems to be the norm in today’s hyper-politicized climate.

  15. You left out an important point. JetBlue was going to completely dismantle Spirit as we know it! JetBlue has a completely different business model than Spirit, and is not a ULCC, or even an LCC, they have essentially become a legacy carrier. The Frontier offer would bring the two ULCCs together.

    If you are a “major” what is your view of Frontier/Spirit? Spirit, while not a huge presence in Latin America, does have an extensive network throughout the Caribbean, Central and South America. Coupled with Frontier’s network, if I’m AA, I’m a little worried. Like AA, Spirit does have a loyal ethnic following to/from Latin America.

    I credit the folks at Spirit – it’s not always about the money (shareholder), it’s about the customer. In the case with F9/NK providing a service that’s affordable to create new markets and clientele. US companies need to look past 90 days!

  16. Not mentioned but ULCC has less than a quarter of SAVE’s book value and lower sales. Hard to see why it is a merger of equals. SAVE had the debacle last summer and went into merger mode, quietly, for months after. Instead of getting the business back on its feet. Not like they are merging from a position of strength.

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