Spirit Airlines announced today that it has rejected the latest merger proposal by Frontier Airlines and is planning to move forward with a standalone restructuring effort.
Spirit Rejects Frontier’s Latest Merger Proposal
Last month, I reported that Frontier and Spirit were going back and forth on merger talks. I felt confident the two sides would come to a deal, especially due to the fact that Frontier seemed like Spirit’s best option for survival.
Since then, the two carriers seem to have had quite a bit of back and forth. According to the press release from Spirit, Frontier submitted a new proposal on February 4, 2025. In this proposal:
- Spirit’s stakeholders would receive $400 million principal amount of second-lien debt issued by Frontier and 19.0% of Frontier’s common equity following the proposed combination.
- Spirit would not be required to complete its previously announced $350 million equity rights offering
- Required a waiver of the Bankruptcy Court-approved $35 million termination fee that would otherwise be owed under the Backstop Commitment Agreement from 2024.
While Spirit was required to take this offer to its advisors as part of the airline’s Restructuring Support Agreement, it indicated that Frontier’s proposal “did not address certain material risks and issues previously identified by the Company” and that it would deliver less value to shareholders.
On February 7, 2025, Spirit submitted a counterproposal to Frontier wherein:
- The aggregate value of the debt ($600 million) and equity ($1.185 billion) to be provided to Spirit stakeholders under the Spirit Counterproposal was equal to the amount of value that Frontier claimed it was providing to Spirit stakeholders.
- Spirit would not be required to complete its previously announced equity rights offering.
- Required Frontier to pay the $35 million termination fee that would otherwise be owed under the Backstop Commitment Agreement.
Frontier is operating from the position of strength here and, unsurprisingly, rejected Spirit’s latest counterproposal. Frontier reiterated the terms of its February 4 offer and Spirit has decided to move forward with its restructuring with the hearing to consider the restructuring plan scheduled for February 13, 2025.
What’s Next for Spirit?
With Spirit choosing to move forward with its restructuring I have to wonder what its seeing that I’m not. The airline space in the country right now is currently going through a ton of change and fellow ultra-low-cost carriers (ULCCs) Frontier and Allegiant are in a much better financial position than Spirit.
The main value I see in Spirit are its assets; aircraft, gates, and pilots. The airline has constantly been messing with its route map as of late and the Pratt & Whitney engine issues have hit a number of aircraft in the fleet. Though I did enjoy my flight with the airline despite a delay.
I’m interested to see what the carrier’s restructuring plan looks like and whether it involves selling off some of its more valuable assets. Spirit has reiterated that it expects to complete the restructuring in the first quarter of 2025 which means its working with a fairly tight timeline.
Summary
Spirit Airlines has rejected Frontier’s latest merger proposal. A merger that I once assumed was inevitable now seems to be dead as Spirit plans to move forward with its restructuring plan. I’m interested to see what this looks like after its presented to the courts.