Merger Would Create Fifth-Largest U.S. Airline

Spirit Airlines has announced that Glass, Lewis & Co., the American proxy advisory services concern, has recommended that Spirit stockholders vote in favor of a proposed merger with Frontier Group Holdings, parent company of Frontier Airlines.

The merger—which would see the two largest discount carriers in the U.S. come together to create the fifth-largest airline in the country—was announced in February and is expected to close in the second half of 2022, pending completion of the regulatory review process and approval by Spirit stockholders.

The deal gives Denver-based Frontier Airlines a 51.5% controlling-stake in the combined airline. Frontier Chairman Bill Franke will chair the combined company, which he says “ … will create America’s most competitive, ultra-low fare airline for the benefit of consumers.”

Franke’s sentiments are mirrored by Spirit CEO Ted Christie, who states, “The transaction is centered around creating an aggressive, low-fare competitor that will better serve guests, expand career opportunities for our team members and create value for our shareholders.”

Per the deal’s provisions, Spirit investors will receive 1.9126 shares of Frontier plus $2.13 in cash for each share they own, totaling an implied value of $25.83 per share. Shareholders of Florida-based Spirit Airlines are scheduled to vote 10 June on Frontier’s offer, which has the unanimous support of the Spirit board.

The name, headquarters, and CEO of the new, amalgamated carrier are to be disclosed by a committee led by Franke after the transaction closes.

With both carriers flying Airbus aircraft exclusively and their pilots and flight attendants being represented by the same union, a Spirit-Frontier merger makes sense on paper. The Biden administration, however, has made clear to corporate America that it will scrutinize potential mergers far more aggressively than the more circumspect and pro-American Trump administration did.

In September, Biden’s Justice Department sued to block a partnership between American and JetBlue, arguing it would reduce competition and drive up airfares. The two carriers denied the allegation, stating the alliance, which went into effect last year, allows them to better compete against Delta and United in America’s Northeast.

Analysts are split on the matter, with some expecting opposition and overreach from Biden’s DOJ, and others believing the proposed transaction will be approved by regulators. Time, as ever, will tell.

FMI: www.spirit.com, www.flyfrontier.com