Frontier makes yet another public offer for Spirit with another public rejection and counter. But is it really question of when rather than if the two merge?
If you are considering booking travel LiveAndLetsFly.com appreciates your support.
If you haven’t followed us on Facebook or Instagram, add us today.
Another Week, Another Offer From Frontier To Buy Spirit Airlines
Frontier Group has tried and failed to secure Spirit since 2022 when it lost its bid to JetBlue, approved by shareholders and regulators only for the DOJ to sue to stop it. Under a new administration with JetBlue moved on from the deal and Spirit in bankruptcy, the two are revisiting the situation. A few weeks ago Frontier offered and it was unequivocally rejected by Spirit with no counter offer, saying it believed its reorganization plan would be stronger for stakeholders.
The Denver-based carrier came back with an enhanced offer including $400 million in debt and a 19% stake in Frontier. But the Frontier offer, rejected again, but this time Spirit offered a counter which was nearly equal to the market cap of Frontier ($1.99 bn at the time of publication.)
“Instead, the Florida-based airline offered a counterproposal in which Spirit shareholders would get $600 million in debt and $1.185 billion in equity – which Frontier rejected.” – CNN
Assigning A Real Value To Spirit’s Fleet
It’s clear that both Frontier and Spirit have a realistic idea of what the carrier is worth and while Frontier’s job is to get the best possible deal for shareholders, Spirit has the opposite task.
It feels a little like taxes where the government knows exactly what you owe and you have to unlock that mystery when tax season comes around. Instead, let’s just assign a value of our own.
| Aircraft Type | Number in Service | Avg Age (Years) | Est Market Value Each |
| Airbus A319-100 | 7 | 10 | $37.3 million |
| Airbus A320-200 | 64 | 8 | $44.4 million |
| Airbus A320neo | 91 | 3 | $55 million |
| Airbus A321-200 | 30 | 7 | $52.5 million |
| Airbus A321neo | 28 | 2 | $64 million |
Spirit, like every airline, finances out major capital expenditures and does not own these aircraft outright. Some older A320/21s have already been sold in an agreement made last year prior to the bankruptcy (but transitioned over time) and the A319s are being retired.
But the NEOs alone have a value of more than $8bn. Even assuming Spirit has no equity in those aircraft (they own them for what they are worth on paper), there’s more than $1bn worth of convenience to be able to add them to Frontier’s fleet right away. Access to all those pilots as well, spare parts for a common fleet, that’s all worth more than the paper value because of how hard it is to get all of that stuff at the same time.
The fleet itself is worth $11.475 bn less just more than half a billion in sales as those assets leave the fleet. There’s bad debt on the business too but Frontier would stand to more than double its fleet size in a combination and with 158 A321 NEOs on order through the next four years, it would close the gap on Southwest. The combined carrier would place the two ULCCs as the fifth largest carrier in the US without the new deliveries.
A net deal to Spirit, inclusive of everything – the fuel in the tanks, the cans of Coca-Cola in the carts, and paper in the printer – should be north of a billion simply for the instant access to fleet and efficiencies. Spirit’s Fort Lauderdale stronghold gives the combined carrier more connection opportunities when Denver just doesn’t make sense and neither does waiting 2-3 days for the next frequency. Both carriers are strong in Vegas, though Spirit is weaker in the west where Frontier has a foothold.
Is It Just A Matter Of Time?
It feels all but inevitable that Frontier and Spirit will join, it’s just a matter of time and the details of the deal. Frontier just reported a very strong quarter as many did in the travel sector. Spirit continues to lose money but it has pared its losses and lightened its overhead. It is more nimble than it was when it entered bankruptcy and is expected to exit in the next few months. There have been other rumblings for carriers that are looking to strengthen their position.
It feels more like horse trading at this point. Frontier will presumably submit another offer, better than their last but not to Spirit’s desired level and the two will inch closer to a deal until one or the other caves. As much as Frontier wants to ensure it gets a great deal, mergers and acquisitions in this space take a long time and it’s worth asking whether a few hundred million here or there matters more than extra time the two carriers could be joined.
Conclusion
Spirit’s fleet is highly desirable. It’s bigger than Frontier, and while Frontier is running a better business at the moment, the two carriers need each other, or rather, they each need some sort of an opportunity to take a leap forward. JetBlue looks to be focused on a different approach, taking more of an Alaska Airlines approach with the hopes of becoming a network carrier, it’s already tried aligning with American Airlines and is opening lounges as well as its new premium credit card product. A Frontier-Spirit deal of some sort will preserve jobs, will allow them to grow and perhaps compete in a reshaped US airline space. The only question is when, and for how much?
What do you think?
Spoiler alert, saw is buying spirit
Trash plus tyrash=more trash
If Indigo Partners (via Frontier) is smart, they’ve calculated a maximum and will stick with it. There maybe some synergy via common airframes, experienced pilots, and valuable slots. However, it takes a hell of a lot of effort to leverage these to their full advantage and Indigo has this reflected in their calculus.
As for Spirit, it’s the creditors calling the shots, not the C-Suite. It just depends on how much of a haircut the creditors can tolerate. And a freestanding post Chapter 11 Spirit is no guarantee. If in doubt, think TWA (chapter 33).