JetBlue goes hostile with tender offer for Spirit Airlines

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JetBlue (NASDAQ:JBLU) is launching a hostile takeover attempt for discount carrier Spirit Airlines (NYSE:SAVE) after the latter rejected its $3.6B offer in favor of an existing deal with Frontier Airlines (NASDAQ:ULCC). The move will see JetBlue appeal directly to Spirit's shareholders by launching a $30 tender offer for their shares, but it would be willing to pay its initial bid of $33 if Spirit comes back to the negotiating table and provides key data that has been requested. SAVE is up 18% to $20/share on the news in premarket trading.

Bigger picture: Both companies have previously accused each other of acting in bad faith, which has held up the discussions. "I have wondered whether blocking our deal with Frontier is, in fact, their goal," Spirit CEO Ted Christie announced on the company's earnings call several weeks back, saying he can't imagine getting regulatory approval for the deal when JetBlue faces antitrust scrutiny over an agreement with American Airlines and overlaps in cities like Orlando and Fort Lauderdale. In response, JetBlue has called the concerns a "smokescreen" and pointed to historical relationships between top brass at Spirit and Frontier Airlines.

The tug of war comes amid a drive to consolidate in the budget airline sector. Any deal which would create the fifth-largest U.S. carrier after United Airlines (UAL), Delta (DAL), American (AAL) and Southwest (LUV). JetBlue also attempted to buy Virgin America in 2016, but lost a contest to Alaska Air Group (ALK).

Go deeper: A serious pilot shortage in the U.S. is prompting many airlines to clamber for solutions, and M&A may be one such answer. The COVID pandemic intensified the situation by slowing training and hiring, as well as triggering a wave of early retirements. Other ideas being considered are raising the mandatory airline pilot retirement age to 67, relaxing training programs, or reducing flight-hour requirements before joining a domestic carrier.

Comments

[craftbrewinfo]

Battle of the bottom feeders! May the least more terrible carrier win !

[goodfellasfinancial]

@craftbrewinfo like the US 2 party system!

[Conejo77]

I'm retired with 50+ years in the Aviation industry. Shortcutting Sim time/flight hours training is highly unsafe for the flying public just to increase the Pilot pool. Downright crazy to even suggest this.

[Akutan]

@Conejo77 I can certainly attest to this behavior in 91k and all 135. The pilot crunch will make bad hiring and training attitudes proliferate. Atlas comes to mind in 121.

[markcc]

@Conejo77
If you are a pilot, you would have qualified under the "250 hour rule" which was raised too 1,500 hours in 2013. In addition, pilots have to have supplemental certification and simulator training.

The question of the "right" number of hours is debatable. 250 was too short and contributed to a crash while 1,500 places a large burden on potential new pilots and airlines.

[Conejo77]

@Akutan Remember Atlas well. Mark is correct 250 hours is inadequate for a Pilot to be turned loose in a cockpit with Pax onboard. 1500 hrs may put a burden on the Al/Pilots but there is no excuse to cut corners when it comes to safety.

[Lightningrules]

How do I give Jetblue my shares for $30? I'm in.

[Tim Dunn]

@Lightningrules You might want to sit tight and listen to SAVE's board and many aviation experts.

First, tell the DOJ that the Northeast Alliance with AAL doesn't matter - they are already suing AAL and JBLU. SAVE rightly believes that the chances of getting a merger with JBLU through while the DOJ is also challenging AAL/JBLU are very slim and will take a long, long time.
As a SAVE stockholder, you should take the ULCC merger which is far more certain to close and do so much, much faster.

[bluedriver]

@Tim Dunn

So that was the Delta airlines corporate communications response there...

A weaker JB is good for Delta, so the only thing you will hear from Tim Dunn are "reasons" not to take the JB deal.

Spirit's BOD is looking out for Spirit's BOD, not their shareholders. No airline outside of the big 3 have had to deal with the US political/regulatory system as much as JB. They know what they can get passed/through DOJ and know what they are willing to do to make it happen, even if they keep their cards close to the vest, and rightfully so.

[markcc]

@bluedriver
Agreed, the voices immediately discounting the acquisition of the #7 airline by the #6 airline are just pushing their own self interests.

With depressed stock prices for all airlines and the airlines in this deal, a stock swap just does not make sense for the Spirit BOD to approve.

Even on CNBC, the voices are immediately discounting the possibility acquisition of the relatively small airlines. The level of assuredness that the JetBlue deal will not happen is not in line with reality as the case is made that the two smaller airlines will be stronger competitors together.

In any case, the business models for the low cost airlines are leading to continued growth at rates the big-3 simply cannot match. With growth, margins are compressed as markets develop, but as market share is achieved that difference will hurt the big-3.

[bigstrike]

"relaxing training programs, or reducing flight-hour requirements"
Hiring skilled and experienced pilots doesn't seem to be a concern so why not add diversity-equity hiring to the mix, too?

[baibeiye]

JetBlue is terrible. Using shitty strategy to undermine spirit and frontier merge. If JetBlue wins, airfare will up bad for Americans.

[klabalpha79]

@baibeiye and if Spirit & Frontier Wins. The flying will be forever a shitty experience with fold-able plastic lawn seats & 6" legroom for the combined airline.

[baibeiye]

@klabalpha79 I am fine with Spirit experience. $40 ticket is attractive. You always pay more using other airlines as there are so many airlines out there.