By Rajesh Kumar Singh and Shivansh Tiwary
CHICAGO (Reuters) -Spirit Airlines and rival Frontier Group are discussing a merger again, more than two years after the two ultra-low-cost carriers failed to close a deal.
On Wednesday, the companies revealed their discussions in a security filing. Spirit, which filed for bankruptcy protection last year, said it has rejected an “inadequate and unactionable” acquisition offer from Frontier, but would consider a revised proposal that addresses its concerns.
Frontier had offered Spirit stakeholders $400 million in debt and a 19% stake in Frontier earlier this month, valuing the transaction at about $2.16 billion.
Spirit said the offer is inferior to the one the two companies had discussed last year before its bankruptcy filing. It also sought an assurance that the deal would close and Frontier would not walk away.
“Should you wish to make a revised proposal that is in fact capable of closing, and addresses the material deficiencies… we would be happy to consider it and again work to activate our stakeholders to do so as well,” Spirit wrote.
The Florida-based airline had signed a cash-and-stock deal with Frontier in 2022 to form a new no-frills airline, but JetBlue Airways jumped into the fray with an all-cash offer, sparking a bidding war for Spirit.
JetBlue eventually prevailed in the takeover battle but the deal was scrapped last year, after a U.S. judge blocked it on anti-competition concerns.
Spirit filed for bankruptcy in November after grappling with prolonged periods of financial losses, unsuccessful merger efforts and substantial debt. On Wednesday, the airline said it expects to complete its restructuring process in the first quarter.
Ultra-low-cost carriers, which excelled at keeping expenses down and offering no-frills travel, have struggled since the pandemic due to a run-up in operating costs as well as a surge in demand for premium travel. They are now being forced to revamp their business models to attract more affluent travelers with more comfortable and bigger seats on their planes.
Some analysts have advocated a merger between Spirit and Frontier, saying it would allow them to compete more effectively with bigger rivals.
Frontier said a merger would be better for long-term viability, making the combination the fifth largest airline in the United States and producing at least $600 million in operational savings. It argued that the deal would offer greater value to Spirit’s stakeholders than the company’s current restructuring plan.
It also expects an “expedited” review of the deal from regulators.
“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,” said Frontier CEO Barry Biffle.
(Reporting by Rajesh Kumar Singh in Chicago and Shivansh Tiwary in Bengaluru; Editing by Arun Koyyur, Kirsten Donovan)
