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JetBlue Looks To Buy Spirit For $3.6B
April 6, 2022
 JetBlue
has submitted a proposal to the Board of Directors of Spirit to acquire Spirit for $33 per share in cash, implying a fully
diluted equity value of $3.6 billion and providing full and certain
value to Spirit shareholders. The proposal represents a premium of 52%
to Spirit’s undisturbed share price on February 4, 20221, and a premium
of 50% to Spirit’s closing share price on April 4, 20222. JetBlue firmly
believes its proposal constitutes a “superior proposal” under Spirit’s
merger agreement with Frontier and represents the most attractive
opportunity for Spirit’s shareholders.
The combination of the two airlines would position JetBlue as the most
compelling national low-fare challenger to the four large dominant U.S.
carriers by accelerating JetBlue’s growth and expanding the reach of the
“JetBlue Effect,” which occurs when legacy carriers react to JetBlue’s
unique combination of low fares and award-winning customer service.
JetBlue triggers significantly greater fare decreases from legacy
airlines when it enters a new market than when ultra-low-cost carriers
enter a market.
“Customers shouldn’t have to choose between a low fare and a great
experience, and JetBlue has shown it’s possible to have both,” said
Robin Hayes, JetBlue CEO. “When we grow and introduce our unique value
proposition onto new routes, legacy carriers lower their fares and
customers win with more choice. The combination of JetBlue and Spirit –
coupled with the incredible benefits of our Northeast Alliance with
American Airlines – would be a game changer in our ability to deliver
superior value on a national scale to customers, crewmembers,
communities, and shareholders. The transaction would accelerate our
strategic growth and create sustained, long-term value for the
stakeholders in both companies.”
Challenges the Dominant Carriers with Low Fares and Award-Winning
Customer Service
In the 22 years since JetBlue first brought low fares to New York,
airline mergers have created a landscape where the four largest U.S.
carriers control more than 80 percent of the domestic market, to the
detriment of consumers. The combination of JetBlue and Spirit would
create the fifth largest domestic airline, better positioning it on a
national level as a customer-centric, low-fare alternative to the
dominant “Big Four” airlines.
JetBlue is loved by customers for its award-winning onboard service,
featuring the most legroom in coach (a); free and fast Fly-Fi broadband
internet (b); complimentary and unlimited name-brand snacks and soft
drinks; and free, live DIRECTV® programming at every seat. The current
merger proposal assumes the rebranding and retrofitting of Spirit’s
fleet as JetBlue, introducing a superior onboard experience to Spirit
customers.
“While JetBlue and Spirit are different in many ways, we also have much
in common, including a focus on keeping our costs low so we can
profitably expand and offer an attractive alternative to the dominant
‘Big Four’ airlines. We would conduct a full review of Spirit’s product
offering, operational and customer technology, and talent pool to
optimize the combined airline,” said Hayes.
Builds on Its Northeast Alliance with American Airlines While Further
Deepening JetBlue’s Commitment to New York and Florida
JetBlue has established deep roots in New York, where it has long been
New York’s Hometown Airline®. The combined company would maintain the
JetBlue brand and continue to be based in New York City.
Through its successful Northeast Alliance (NEA) with American Airlines,
JetBlue is currently experiencing significant growth in New York and
Boston. In the New York area, JetBlue plans to grow from 200 to nearly
300 daily flights across JFK, LaGuardia, and Newark airports this year.
JetBlue’s expanded presence is already significantly benefitting the
community, with plans to hire 5,000 new crewmembers in the New York-New
Jersey region this year and offering travelers in and out of the New
York and Boston areas more choices, low fares, and JetBlue’s
award-winning experience. The combination with Spirit would complement
the NEA’s positive impact in the Northeast by similarly expanding
JetBlue’s presence nationwide.
JetBlue has a long history in Florida, starting with the airline’s first
revenue flight in 2000 between New York and Fort Lauderdale. With
Spirit’s existing headquarters in the Fort Lauderdale area and presence
at Fort Lauderdale-Hollywood International Airport (FLL), JetBlue would
have the opportunity to deepen its longstanding commitment to Florida.
Both Fort Lauderdale and Orlando are JetBlue focus cities, and its
JetBlue Travel Products subsidiary – best known for its fast-growing
JetBlue Vacations and Paisly product offerings – is also based in the
Fort Lauderdale area. The combined airline would offer more than 170
daily flights at FLL, building JetBlue’s relevance as a stronger
low-fare competitor in South Florida. At Orlando International Airport (MCO),
JetBlue would grow to more than 130 daily flights. JetBlue maintains its
training campus and a customer support center in Orlando, and would plan
for significant expansion in Florida to support the larger, combined
airline.
“Our Northeast Alliance with American Airlines has supercharged our
growth in New York and Boston, unlocking opportunities for us to grow
where we could not have before. We view a combination with Spirit as
perfectly complementing the NEA. These strategic moves aim to increase
our relevance and bring the JetBlue competitive effect to more places
while deepening our roots in the communities we call home. Throughout
the pandemic, Florida has been a bright spot for JetBlue, and this would
offer us the opportunity to hire even more crewmembers in the state,
increase service in FLL and MCO for our customers, and further expand
our training and support center footprint,” Hayes said.
Offers Crewmembers Greater Opportunities Supported by JetBlue’s
Differentiated Culture
JetBlue’s differentiated culture has made it a leading place to work
since its first flight in 2000. Supported by JetBlue’s mission to
Inspire Humanity and its values-based culture, the combined airline
would have 32,000 crewmembers with plans to hire more as the airline
grows.
By bringing together the power of the JetBlue and Spirit teams, with
their shared commitment to customers and innovation, the combination
would strengthen JetBlue’s ability to grow, deliver outstanding service,
and compete in a domestic market dominated by the four largest airlines.
A larger, financially stronger JetBlue would provide current and future
crewmembers with more career growth opportunities, broader travel
benefits, more opportunities to make a bigger difference in the
communities JetBlue and Spirit serve, and a deeper bench of intellectual
capital to support the future growth of the airline.
JetBlue is committed to working with labor leaders representing
crewmembers and team members at both airlines to ensure the combination
supports the needs of those that operate the airline, especially as
Spirit team members join JetBlue. JetBlue intends to continue having
direct crewmembers in places where it has them today and would insource
Spirit roles in those cities. In locations where JetBlue does not
currently insource, it would plan to conduct a full review to evaluate
Spirit’s staffing model and determine the optimal path forward for the
combined company.
Unlocks JetBlue Growth Across the U.S., Caribbean, and Latin America
The proposed transaction would turbocharge JetBlue’s network strategy,
diversifying and expanding JetBlue’s footprint across the U.S.,
Caribbean, and Latin America. The combined network would serve more than
77 million customers annually on more than 1,700 daily flights to over
130 destinations in 27 countries from Peru to the United Kingdom –
increasing customer options with a significantly broader network and
increasing relevance and connectivity in JetBlue’s focus cities.
The transaction would allow JetBlue to grow in its focus cities like Los
Angeles, Fort Lauderdale, Orlando, and San Juan, as well as in legacy
hubs where the dominant carriers control with high fares, including Las
Vegas, Dallas, Houston, Chicago, Detroit, Atlanta, and Miami. The
combination would introduce JetBlue for the first time to new
destinations, including St. Louis; Memphis, Tenn.; Louisville, Ky.,
Atlantic City, N.J.; Myrtle Beach, S.C.; and four additional
destinations in Colombia.
The combination would leverage JetBlue and Spirit’s complementary Airbus
fleet and order book to drive sustained, profitable growth. The combined
airline would have a fleet of 455 aircraft with 312 Airbus aircraft on
order. The joint fleet would be one of the youngest and most fuel
efficient in the industry. With JetBlue’s Embraer E190 fleet set for
retirement, a common Airbus fleet and engine commonality would simplify
integration, reducing the need for additional training and offering
opportunities to better utilize spares, parts, and manufacturer support
across both airlines.
Expands JetBlue’s Goal to Achieve Net Zero Carbon Emissions Ahead of
Industry
JetBlue is taking bold steps to address its emissions and reduce its
contribution to climate change. Its combined fleet with Spirit would
accelerate its transition to next generation aircraft composed of modern
and fuel-efficient aircraft to achieve its sustainability goals.
JetBlue plans to achieve net zero carbon emissions by 2040 – 10 years
ahead of the broader industry’s goal. JetBlue’s sustainability programs
aim to:
Decrease aircraft emissions 25% per available seat mile (ASM) by 2030
from 2015 levels, excluding offsets.
Convert 10% of total jet fuel to blended sustainable aviation fuel by
2030, and 30% in New York.
Convert 40% of three main ground service equipment vehicle types to
electric by 2025 and 50% by 2030.
Eliminate single-use plastic service ware where possible. Where not
possible, ensure plastic is recyclable.
Maintain at least an 80% recycling rate for audited domestic flights.
Delivers Superior Value and High Degree of Certainty for All
Shareholders
JetBlue’s proposal offers Spirit shareholders full and certain value,
and a high degree of certainty. The proposal values Spirit at $33 per
share in cash, which represents:
A 52%1 premium to Spirit’s undisturbed share price as of February 4,
2022, the last trading day before the Frontier transaction announcement.
A 50%2 premium to Spirit’s closing price on April 4, 2022, or a premium
of $11.01 per share in cash to Spirit shareholders.
A 37%3 premium to the value implied by the Frontier transaction as of
April 4, 2022.
An implied aggregate equity value of $3.6 billion and an adjusted
enterprise value of $7.3 billion for Spirit.
 No
JetBlue shareholder vote is required to complete the proposed
transaction, which will not be subject to financing contingency. JetBlue
has approximately $2.8 billion of cash on hand as of December 31, 2021,
and has a variety of unencumbered assets available to finance, worth in
aggregate approximately $9 billion.
The proposed transaction is expected to deliver $600-700 million in net
annual synergies once integration is complete, driven in large part by
expanded customer offerings resulting from the greater scale of the
network. The combined airline is projected to have annual revenues of
approximately $11.9 billion based on 2019 revenues. JetBlue expects the
transaction to be accretive to earnings per share in the first full
year, excluding integration costs.
Given its conviction in securing the necessary regulatory approvals,
JetBlue is highly confident that its proposed transaction would be
completed on a timely basis and on a timeframe generally consistent with
the pending transaction with Frontier. JetBlue’s proposal contemplates
that the definitive agreement for the proposed transaction would contain
contractual commitments designed to address any regulatory concern,
including, while JetBlue is highly confident in the completion of the
transaction, a “reverse break-up fee” that would become payable to
Spirit in the unlikely event the proposed transaction is not consummated
for antitrust reasons. These terms represent a meaningful improvement
compared to the terms contemplated in the pending transaction with
Frontier.
Transaction Details
JetBlue intends to fund the transaction with cash on hand and debt
financing led by Goldman Sachs & Co. LLC.
The execution of a definitive merger agreement between JetBlue and
Spirit would be subject to approval by each company’s Board of Directors
and completion of the transaction would be subject to customary closing
conditions, including receipt of required regulatory approvals and
approval of Spirit’s shareholders. |
