Spirit Airlines is reportedly in talks with rival ultra-low-cost carrier Frontier over a potential merger. The news comes just a day after it emerged that Spirit had secured a vital $100 million lifeline at the eleventh hour, but only on the condition it considered a ‘strategic transaction.’
In plain English, that means that lenders were willing to give Spirit access to even more money on the basis that it looked at the possibility of selling the airline to a rival… and Frontier has always been the most likely partner.
Spirit Airlines in merger talks with Frontier
On Tuesday, Bloomberg reported that Spirit Airlines was in renewed talks with Denver-based Frontier Airlines over a possible merger or acquisition.
Citing sources who are said to be familiar with the ongoing discussions, Bloomberg reported that a deal could be announced by the end of the year. That being said, talks are still very much ongoing, and the sources cautioned that they may well in failure.
The talks mark the fourth potential merger between Spirit and Frontier, although on this occasion, Spirit may have little option but the accept whatever its rival budget carrier is putting on the table.
$100 million lifeline secured at the eleventh hour
Spirit entered its second Chapter 11 bankruptcy process in less than a year in August with the aim of restructuring its business, slashing costs, and (hopefully) returning to profitability as an independent carrier.
Part of the Chapter 11 process involved Spirit securing access to $475 million in additional funding from existing lenders, known as Debtor-In-Possession financing. This financing is due to be released in tranches and on condition that Spirit meets certain conditions.
The airline secured an initial $100 million draw from the DIP pot in October, and a second draw of $75 million was authorized last month. For the third draw equating to $100 million, Spirit was meant to meet several key conditions by last Saturday.
The airline failed to meet all of these conditions, but lenders agreed to slightly amend the DIP agreement, granting Spirit access to an immediate $50 million draw while it looks at options to continue to reorganization of its business or a potential ‘strategic transaction.”
Spirit has rejected several takeover bids from Frontier
Frontier Airlines is the obvious partner for Spirit, but the two airlines have tried and failed on three seperate occasions to secure a merger agreement.
- In 2022, Frontier and Spirit announced a landmark merger agreement, but the deal was thrown into turmoil when JetBlue made an unsolicited offer for Spirit. After some back and forth, Spirit’s shareholders backed JetBlue’s inflated offer for the carrier, only for the Department of Justice to oppose the takeover in federal court. Ultimately, the DOJ prevailed, and Spirit had to carry on as an independent carrier.
- Following the DOJ’s victory, Frontier made a second offer in 2024 o acquire Spirit in a deal which would have valued Spirit at $580 million and given shareholders a 26.5% stake in the combined company. Following months of talks, however, Frontier unilaterally decided to walk away from negotiations, and Spirit eventually went down the Chapter 11 bankruptcy path in a pre-packaged deal.
- Then, earlier this year, Frontier made a third unsolicited offer to acquire Spirit, but this time it was only offering $400 million and 19% in equity for Frontier’s shareholders. Spirit pushed back, claiming Frontier had massively undervalued its business. Frontier rejected the counterproposal and walked away from talks.
Just months later, Spirit went back into Chapter 11 bankruptcy protection. On this occasion, Spirit wasn’t just trying to raise some extra capital without making any fundamental changes to its business.
The airline warned that a total reorganization would be required if Spirit had any chance of remaining a going concern, but its executives insisted that the plan was to keep Spirit as its own company.
That all changed yesterday when Spirit admitted that it was now looking at a strategic transaction.
Bottom line
It looks increasingly likely that Spirit’s story will end in one of two ways:
- The airline runs out of cash and ceases operations, leaving tens of thousands of passengers stranded.
- Spirit is bought by a rival like Frontier and is merged into a larger airline.
Last weekend, Spirit’s lenders came to the conclusion that it was better to lend the embattled carrier more money to prevent the airline’s abrupt closure, but the prospect of Spirit remaining an independent company is doubtful.
