Frontier and Spirit are Merging to Create One of the Largest Airlines in the United States

In a deal that was approved by both companies over the weekend, Frontier Airlines and Spirit Airlines will be merging to create the fifth largest airline in the U.S.

The $6.6 billion deal is structured with Frontier Airlines controlling the merged airline and Spirit holding the remaining 48.5%. The merger gives Denver-based Frontier Airlines a 51.5% controlling stake in the combined airline. Spirit investors will receive 1.9126 shares of Frontier plus $2.13 in cash for each share they own, giving Spirit shareholders an implied value of
$25.83 per share, which is a 19% premium over the value of Spirit shares at the end of last week, the companies said.

“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,” remarked Ted Christie, CEO of Miramar, Fla.-based Spirit. “We believe we are a perfect fit with Frontier. Our businesses share similar values, including our long-standing commitment to affordable travel.”

The merger would be the first merger of large U.S. airlines since Alaska Airlines’ combination with Virgin America back in 2016.
Frontier Chairman Bill Franke, a longtime discount airline investor and executive, will chair the combined company. According to Franke, the merged company “will create America’s most competitive ultra-low fare airline for the benefit of consumers.”

The companies didn’t announce the new name of the combined carrier, the CEO or location of the airline’s headquarters.

The companies said those questions will be answered by a committee led by Franke after the transaction closes, which is expected in the second half of the year, pending regulatory and shareholder approval.

The two carriers overlap on about 520 of more than 2,800 routes, according to aviation data and consulting firm Cirium.

“Spirit is very strong in the East. Frontier is very strong in the West,” Frontier CEO Barry Biffle told analysts on a call discussing the deal. “That’s going to drive more customers onto our existing flights, which means more low fares to more people.”

“It makes a lot of sense and the opportunity has been ripened by the demand patterns of the pandemic,” said Samuel Engel, senior vice president at consulting firm ICF.

“We believe the proposed transaction will be approved by regulators given the minimal overlap of route networks and the fact that it is likely to be viewed as proconsumer,” Deutsche Bank airline analyst Michael Linenberg said in a note.

The two largest ultralow-cost carriers in the U.S saw their shares rise as Wall Street learned the news. Spirit jumped over 17% while Frontier closed up 3.5%.

Disclaimer: We have no position in any of the companies mentioned and have not been compensated for this article.