Frontier Group Holdings, the parent company of Frontier Airlines, has issued another formal proposal for a merger with Spirit. The Denver, Colorado based carrier filed a Form 8-K regarding the proposed merger with the Securities and Exchange Commission earlier today.
Spirit is currently undergoing Chapter 11 Bankruptcy proceedings and for many folks, myself included, a merger seems like the only way the airline has any long term future. Frontier issued a press release accompanying the filing outlining the value of the proposed carrier to Spirit stakeholders.
It’s worth noting that this is the second time Frontier has attempted to purchase Spirit, an earlier bid was beaten out by JetBlue before being struck down by the United States Department of Justice (DOJ).
Frontier is pushing hard to combine the two ultra-low-cost carriers (ULCCs) with CEO Barry Biffle stating:
“While we are pleased with the strong results Frontier has been able to deliver through the execution of our business strategy, we have long believed a combination with Spirit would allow us to unlock additional value creation opportunities. As a combined airline, we would be positioned to offer more options and deeper savings, as well as an enhanced travel experience with more reliable service.”
Frontier has held discussions with members of Spirit’s board of directors and management team, as well as representatives of Spirit’s financial stakeholders regarding the proposal. Frontier also shared documentation illustrating the fact that “Spirit’s standalone plan will likely result in an unprofitable airline with a high debt load and limited likelihood of success”.
The combined airline would become the fifth largest airline in the United States, behind Southwest and ahead of the recently merged carrier comprising Alaska Airlines and Hawaiian Airlines.
Frontier has sent a letter to Spirit’s Chairman and Chief Executive Officer outlining the terms of its proposal to purchase the underperforming ULCC. The full text of the letter is below.
Dear Mr. Gardner and Mr. Christie:
As has been confirmed in our discussions with you and your advisors, both parties agree there is compelling industrial logic to the combination of our two companies. To that end, we have proposed to you a transaction, as previously communicated and as attached herein. We believe this transaction generates meaningful value for your stakeholders in excess of that generated by the plan you currently have on file with the Bankruptcy Court.
We put forward this offer in good faith, understanding that it generates more value for all Spirit stakeholders, including common stockholders. We have not, however, received a specific counterproposal but stand ready to negotiate any and all parts of this offer after receiving a substantive response from you.
We continue to believe that under the current standalone plan, Spirit will emerge highly levered, losing money at the operating level, and this would not be a transaction we would pursue. As a result, time is of the essence.
Sincerely,
Bill and Barry
Spirit, in its own 8-K filing with the SEC, appears to have rejected Frontier’s offer stating the proposal “represents an extremely material reduction in value” compared to the agreement that was reached during the 2024 merger talks. Spirit appears to be ignoring the fact that they have entered bankruptcy since the 2024 merger talks ended and now find themselves in a much more precarious financial situation.
While I won’t dive into all of the numbers being thrown around, Spirit likely doesn’t have much of a choice but to merge at the end of the day. The company has not been profitable for a long time and is hemorrhaging cash. Spirit leadership appears to think they are operating from a position of strength but, really it is quite the opposite.
It’s too early to tell exactly where the numbers will land, but I don’t see a world where Spirit and Frontier don’t reach an agreement to merge. Frontier clearly sees value in Spirit and is likely the only lifeline the beleaguered ULCC has remaining.
Summary
Frontier Airlines has issued a proposal to merge with fellow ULCC Spirit. Leadership of the two airlines can’t seem to agree on a value, with Spirit executives rejecting Frontier’s proposal. However, given Spirit’s financial state, I don’t see a scenario in which this merger doesn’t end up happening.
