Frontier Airlines and Spirit Airlines agreed to merge in a deal valued at $6.6 billion, creating the fifth-largest airline in the country. Interestingly, the merger gives Frontier Airlines a 51.5% controlling stake in the combined airline.
Spirit’s investors will receive 1.9126 shares of Frontier Airlines plus $2.13 in cash for each share they own, giving Spirit’s shareholders an implied value of $25.83 per share, which is a 19% premium over the value of Spirit’s shares at the end of the last week.
The boards of Spirit Airlines and Frontier Airlines approved the deal over the weekend. More importantly, it would be the first merger of large U.S. airlines in several years and a test of the Biden administration’s tolerance for consolidation.
Spirit, Frontier, and new opportunities
Frontier’s Chairman Bill Franke will chair the combined company. The two largest discount carriers in the U.S. didn’t announce the company’s new name. They also didn’t announce the CEO or location of the airline’s headquarters.
The deal between Frontier and Spirit comes as airlines are still struggling to recover from the pandemic. Both of them have been able to weather the crisis better than their larger-carrier competitors. Delta and others heavily rely on revenue from international and business travel, two segments that lagged in the recovery.
Several years ago, more precisely in 2013, Spirit and Frontier had 2.8% of the revenue passenger miles flown by U.S. airlines. By 2019, their combined market share reached 5.4%. Both of them are using only Airbus planes.
According to Spirit and Frontier, the deal would allow them to expand their operations. They plan to add 10,000 new jobs by 2026. Frontier Airlines stated that it doesn’t expect there to be any furloughs.
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