Spirit Airlines, USA, has rejected Frontier Airlines’ merger attempt. The company said it will “continue swiftly to advance and conclude its restructuring process”.
Spirit rejects Frontier’s third bid for a merge
The low-cost carrier, Spirit, is currently undergoing a Chapter 11 bankruptcy reorganisation. Despite this, Frontier Group Holdings’ acquisition offer of $2.16 billion was rejected by Spirit Airlines, which claimed the bid was less beneficial to its shareholders.
The two airlines have attempted to merge more than once, the first attempt dating back to 2022. But, Frontier was outbid by JetBlue Airways, which was eventually overruled by a federal judge in 2024. The judge decided that the merger would cause airfares to increase.Frontier Airlines made another attempt in autumn 2024, but discussions fell through before Spirit Airlines filed for bankruptcy. Spirit Airlines became the first major US airline to file for a Chapter 11 bankruptcy in 13 years.
Should the two airlines merge, the combination would create the fifth largest airline in the US. Frontier Airlines claims it would be able to carry 100 million passengers, on over 400 operating aircraft, within the next four years, if it was to merge. However, after a series of negotiations, Spirit still rejected the bid. So, if the two groups have nearly merged in the past, why is it more difficult this time?
Proposals and counterproposals
Frontier Airlines first proposed the merger on February 4. It offered $400 million in debt to Spirit Airlines’ shareholders, and 19% of Frontier’s common equity. The proposal also asked Spirit to drop a $350 million equity rights offering and use this to retire its debtor-in-possession facility. This also required the $35 million bankruptcy court-approved termination fee to be waived.
On February 7, Spirit Airlines counteroffered. It wanted to provide its stakeholders with $600 million in debt and $1.18 billion in equity. It also proposed a market-based mechanism which would determine how much equity shareholders would earn, rather than a fixed equity. Therefore, the equity rights offering would be dropped, but Frontier would be required to pay the $35 million termination fee.
Frontier Airlines rejected the counterproposal on February 10, and reiterated the original proposal entirely. Chief executive of Frontier, Barry Biffle, wrote to Spirit’s chief executive, Ted Christie, stating the company had made “a significant concession” eliminating the $350 million equity rights offering and that it would “not agree to materially alter any of the other commercial terms of our plan”. He added that Frontier offers a “superior proposal”.
On the same day, Spirit Airlines submitted a revised Confirmation Order to the US Bankruptcy Court. The court was set to rehear the organisation plan on February 13.
Is rejection the best decision?
Some might view the merger as Spirit’s “get out of jail card”, but that may not be the case. Although the Airline filed for bankruptcy, the importance lies in the fact that it’s a Chapter 11. This means that Spirit Airlines is permitted to continue operating while restructuring its debt payments and cutting costs.
However, these cost reductions have led to cancellations, considering Spirit cut 30 routes from its schedule in November. Nonetheless, passengers are entitled to a full refund by contacting the airline.
A merger with Frontier Airlines may keep Spirit in a longer bankruptcy period, in which Frontier is allowed to walk away. But, if Spirit efficiently reorganises its debts using Chapter 11, this may allow the group to reduce its monthly debt load while maintaining a positive cash flow.
Do you think the two should merge? Let us know in the comments!
