On Wednesday, Spirit Airlines shareholders approved the proposed merger with JetBlue, ushering in the next significant development in the ongoing saga over the airline's future.
The merger with rival ultra-low-cost carrier Frontier Airlines was effectively rejected by shareholders three months prior to the vote.
In April, JetBlue made the first unsolicited offer for Spirit, starting a protracted bidding war with Frontier as both airlines looked to acquire Spirit.
Spirit's board of directors and executives pleaded with shareholders to accept Frontier's offer of shares and cash even though it was priced lower than JetBlue's proposal because it was more likely to receive regulatory approval.
Before it could be finished, Spirit withdrew the shareholder vote that seemed to be headed for a rejection.
Since then, the board has decided to accept the JetBlue offer.
American, Delta, United, and Southwest would be America's top four airlines after a merger of Spirit and JetBlue.
The sixth- and seventh-largest airlines at the moment are JetBlue and Spirit, respectively.
The New York-based carrier would acquire Spirit outright for $3.8 billion under JetBlue's current offer.
The airline has stated that it intends to upgrade and rebrand Spirit's planes as its own, effectively tripling its size and doing rid of the other low-cost, basic brand.
JetBlue has stated that the supply chains for new aircraft and the general labour market, which has witnessed high demand for pilots, flight attendants, aircraft maintenance professionals, and others, are limiting its current expansion potential.
JetBlue management claim that by acquiring and absorbing Spirit, they will be able to compete more effectively with the so-called "big four" airlines.
The Biden Administration, however, has expressed resistance to industry consolidation, particularly that of the aviation sector.
The airline's Northeast Alliance with American, which the DOJ has said to be anti-competitive, is the subject of an ongoing antitrust dispute between JetBlue and the Department of Justice in U.S. District Court.
JetBlue executives have however maintained their confidence in their ability to obtain regulatory approval, even if they ultimately need to present their case in court.
The DOJ must question itself, "How did we get into a position where four airlines dominate 80% of the domestic seats?" in light of the current situation.
During a telephone interview in late July, JetBlue president Joanna Geraghty posed the question.
"Fairness is the underlying problem here at the DOJ level," she continued.
We desire to be able to compete on an even playing field with the DOJ.
Meanwhile, Frontier CEO Barry Biffle claimed that removing the Spirit brand will result in higher airfares and present an opportunity for his airline.
According to Biffle, "consumers will want us because they'll be paying more, so we'll grow as rapidly as we can to save them money."
The acquisition's financing presents a hurdle for JetBlue as well.
JetBlue will incur significant costs to retrofit Spirit's 180 aircraft, likely in the range of $3-$4 million per aircraft, or a total of around $540 million to $720 million, according to one estimate from an unnamed independent industry expert. These expenses are on top of the $3.8 billion acquisition costs.
JetBlue's total assets, including its fleet of aircraft, were valued at $13.5 billion at the end of the second quarter of this year, compared to just under $2.6 billion in cash, equivalents, and investment securities and $3.8 billion in debt.
Even if it used almost all of its cash and stock assets, it would fall short by around $1 billion for the transaction.
If the merger was rejected by the Department of Justice or fell through for any other reason, JetBlue would also be required by the terms of its offer to reimburse shareholders for a reverse breakup fee worth around $470 million.
The transaction might be completed as soon as early 2024 if regulators allow it.
FACEBOOK