Frontier Airlines Confirms Compelling Proposal to Combine With Spirit Airlines

Rhea-AI Summary

Frontier Airlines (NASDAQ: ULCC) has proposed a merger with Spirit Airlines through the issuance of new Frontier debt and common stock. The proposal aims to create a stronger low-cost carrier that would provide higher value than Spirit's standalone restructuring plan. Bill Franke, Frontier's Board Chair, emphasizes the opportunity to create a more competitive airline with enhanced market entry capabilities.

According to Frontier's CEO Barry Biffle, the combined airline would offer more options, deeper savings, and improved service reliability. Frontier has engaged in discussions with Spirit's board, management, and financial stakeholders, sharing materials that suggest Spirit's standalone plan would result in an unprofitable airline with high debt. The proposal details were submitted via letter to Spirit's Chair and CEO, emphasizing the urgency of the situation and Frontier's readiness to negotiate.

Positive

• Potential for significant operational synergies through airline combination
• Enhanced market competitiveness and ability to enter new markets at scale
• Improved value proposition for Spirit's financial stakeholders compared to standalone plan
• Opportunity for cost savings and expanded service offerings

Negative

• Spirit's current standalone plan projected to result in unprofitable operations
• High debt load concerns under Spirit's existing restructuring plan
• No specific counterproposal received from Spirit yet
• Time-sensitive nature of deal adds pressure to negotiations

Insights

Financial Industry Analyst

The proposed merger between Frontier Airlines (ULCC) and Spirit Airlines marks a pivotal moment in the ultra-low-cost carrier (ULCC) segment. This strategic move is particularly significant given Spirit's current bankruptcy proceedings and could reshape the competitive dynamics of the budget airline market.

Several critical aspects warrant attention:

• The proposal's structure through new debt and equity issuance suggests Frontier is taking a calculated approach to maintain financial flexibility while pursuing growth. This is important given the historically thin margins in the ULCC segment.
• Spirit's current standalone plan is described as potentially resulting in an unprofitable airline with high leverage - a significant red flag for potential investors and creditors. Frontier's intervention could prevent a repeat of other failed airline restructurings.
• The merger's timing is strategic, as it comes during Spirit's bankruptcy proceedings, potentially allowing for more favorable terms and debt restructuring opportunities. This could lead to a stronger combined entity with improved operational efficiency and market presence.
• The emphasis on "significant synergies" suggests potential cost savings through route optimization, fleet consolidation and operational streamlining. Historical airline mergers typically target 3-5% cost synergies, which could be substantial given both carriers' similar business models.

The urgency expressed in the communication ("time is of the essence") indicates Frontier's strong negotiating position and suggests they may have alternative strategic options if this deal doesn't materialize. For investors, this merger represents a potential value-creation opportunity through increased market share and operational efficiencies, though integration risks and regulatory approval remain key considerations.

Airline Industry Specialist

From an operational perspective, this merger proposal presents compelling synergistic opportunities:

• Both airlines operate Airbus A320 family aircraft, enabling significant maintenance and crew training efficiencies. This commonality typically reduces operational costs by 10-15% compared to mixed-fleet operators.
• The combined network would strengthen presence in key markets while reducing head-to-head competition, particularly in Florida and the Caribbean where both carriers have significant overlap.
• Labor integration, often a major hurdle in airline mergers, could be more straightforward given the similar low-cost operating models and corporate cultures.
• The merged entity would gain enhanced negotiating power with suppliers, airports and service providers, potentially leading to improved cost structures and operational flexibility.

The timing is particularly strategic as the industry faces capacity constraints and infrastructure limitations at major airports. A combined Frontier-Spirit would have greater ability to acquire and maintain valuable gate positions and slots, especially at capacity-constrained airports.

Proposed Transaction Delivers Higher Recoveries for Spirit Financial Stakeholders, Including Shareholders, Than Spirit Standalone Plan of Reorganization

Frontier Stands Ready to Continue Constructive Discussions with Spirit and its Financial Stakeholders

DENVER, Jan. 29, 2025 /PRNewswire/ -- Frontier Group Holdings, Inc. ("Frontier") (NASDAQ: ULCC), parent company of Frontier Airlines, Inc. today confirmed it made a compelling proposal to combine with Spirit Airlines, Inc. ("Spirit") through the issuance of newly issued Frontier debt and common stock.

The proposed transaction would provide meaningful value to Spirit financial stakeholders, in excess of Spirit's standalone restructuring plan. As investors in the combined airline, Spirit's financial stakeholders could participate in the upside of a stronger low-cost carrier while benefiting from the very significant synergies Frontier expects to achieve by combining the airlines' operations.

Bill Franke, the Chair of Frontier's Board of Directors and the managing partner of Indigo Partners LLC, said, "This proposal reflects a compelling opportunity that will result in more value than Spirit's standalone plan by creating a stronger low fare airline with the long-term viability to compete more effectively and enter new markets at scale. We stand ready to continue discussions with Spirit and its financial stakeholders and believe that we can promptly reach agreement on a transaction. We are hopeful we can achieve a resolution that delivers significant value for consumers, team members, communities, partners, creditors and shareholders."

"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," said Barry Biffle, CEO of Frontier. "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."

Since submitting the proposal, Frontier has held discussions with members of Spirit's board of directors and management team, as well as representatives of Spirit's financial stakeholders with respect to the proposal. As part of the discussions, Frontier shared materials with Spirit and its financial stakeholders regarding the benefits of the proposed transaction. The materials, which are based on Spirit's bankruptcy court filings, also demonstrate that Spirit's standalone plan will likely result in an unprofitable airline with a high debt load and limited likelihood of success.

The materials have been furnished on Form 8-K with the Securities and Exchange Commission.

Frontier delivered a letter outlining the terms of its proposal and Frontier's willingness to continue to engage in negotiations to Spirit's Chair and Chief Executive Officer. The full text of the letter follows:

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

Advisors

Citigroup Global Markets, Inc. is serving as financial advisor and Latham & Watkins LLP is serving as legal counsel to Frontier.

Cautionary Statement Regarding Forward-Looking Statements and Information

Certain statements in this communication should be considered forward-looking statements within the meaning of Section 27A of the Securities Act, Section 21E of the Exchange Act, and the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on Frontier's current expectations and beliefs with respect to certain current and future events and anticipated financial and operating performance. Words such as "expects," "will," "would", "plans," "intends," "anticipates," "indicates," "remains," "believes," "estimates," "forecast," "guidance," "outlook," "goals," "targets" and similar expressions are intended to identify forward-looking statements. Additionally, forward-looking statements include statements that do not relate solely to historical facts, such as statements which identify uncertainties or trends, discuss the possible future effects of current known trends or uncertainties, or which indicate that the future effects of known trends or uncertainties cannot be predicted, guaranteed or assured. All forward-looking statements in this communication are based upon information available to Frontier on the date of this report. Frontier undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changed circumstances or otherwise, except as required by applicable law.

Actual results could differ materially from these forward-looking statements due to numerous risks and uncertainties related to Frontier's and Spirit's respective businesses and Frontier's proposed transaction with Spirit including, without limitation, the following: uncertainty as to whether Spirit will further pursue, enter into or consummate the proposed transaction on the terms set forth in the proposal or on other terms; uncertainties as to the timing of the proposed transaction; adverse effects on Frontier's share price resulting from the announcement or completion of the proposed transaction or any failure to complete the proposed transaction; failure to obtain applicable regulatory or other required approvals in a timely manner; failure to satisfy other closing conditions to the proposed transaction; failure of the parties to consummate the proposed transaction; risks that the combined companies will not realize estimated cost savings, value of certain tax assets, synergies and growth, or that such benefits may take longer to realize than expected or raise unanticipated costs; failure to realize anticipated benefits of the combined operations; risks relating to unanticipated costs of integration; demand for the combined company's services; the growth, change and competitive landscape of the markets in which the combined company participates; expected seasonality trends; diversion of managements' attention from ongoing business operations and opportunities; potential adverse reactions or changes to business, creditor or employee relationships, including those resulting from the announcement or completion of the proposed transaction or the Spirit Chapter 11 proceeding; competitive responses to the announcement or completion of the proposed transaction; risks related to investor and rating agency perceptions of each of the parties and their respective business, operations, financial condition and the industry in which they operate; risks related to the potential impact of general economic, political and market factors on the companies or the proposed transaction; the impacts of Frontier's significant amount of financial leverage from fixed obligations, the possibility Frontier may seek material amounts of additional financial liquidity in the short-term and the impacts of insufficient liquidity on Frontier's financial condition and business; failure to comply with the covenants in Frontier's financing agreements or failure to comply with financial and other covenants governing Frontier's other debt; changes in, or failure to retain, Frontier's senior management team or other key employees; current or future litigation and regulatory actions, including in relation to the proposed transaction, or failure to comply with the terms of any settlement, order or arrangement relating to these actions; increases in insurance costs or inadequate insurance coverage; and other risks and uncertainties set forth from time to time under the sections captioned "Risk Factors" in Frontier's reports and other documents filed with the Securities and Exchange Commission (the "SEC"), including Frontier's Annual Report on Form 10-K for the fiscal year ended December 31, 2023, which was filed with the SEC on February 20, 2024, and Frontier's Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, which was filed with the SEC on May 2, 2024.

Contacts

Investor inquiries:

David Erdman, Investor Relations
Email: David.Erdman@flyfrontier.com
Phone: 720.798.5886

Media inquiries:

Jennifer F. de la Cruz, Corporate Communications
Email: JenniferF.DeLaCruz@flyfrontier.com
Phone: 720.374.4207

 

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SOURCE Frontier Group Holdings, Inc.

FAQ

What are the terms of Frontier Airlines' (ULCC) merger proposal with Spirit Airlines?

Frontier Airlines proposes to combine with Spirit Airlines through the issuance of new Frontier debt and common stock, offering Spirit's stakeholders higher value than their standalone restructuring plan.

How would the Frontier-Spirit merger benefit shareholders of both airlines?

The merger would allow shareholders to participate in a stronger low-cost carrier with significant synergies, more competitive capabilities, and enhanced market presence.

What concerns does Frontier (ULCC) raise about Spirit's standalone restructuring plan?

Frontier indicates Spirit's standalone plan would likely result in an unprofitable airline with high debt load and success prospects.

What operational benefits would the Frontier-Spirit merger create?

The combined airline would offer more options, deeper savings, enhanced travel experience, and more reliable service while competing more effectively in new markets.

What is the current status of Spirit's response to Frontier's (ULCC) merger proposal?

As of January 2025, Spirit has not provided a specific counterproposal, though discussions have occurred between both companies' management teams and stakeholders.