JPMorgan Sees 'Growing Probability' Of A Spirit-JetBlue Deal
Spirit Airlines Inc's acquisition by JetBlue Airways Corp has become a "growing probability", according to analysts at JPMorgan.
Florida-based ultra-low-cost carrier Spirit is the subject of a bidding war between JetBlue and Frontier Group Holdings Inc.
Both bidders view Spirit as an opportunity to expand their domestic footprints at a time when the U.S. airline industry is dogged by persistent labor and aircraft shortages. Either of the two deals would create the fifth-largest U.S. airline.
"...a merger outcome between Spirit and JetBlue is a growing probability and may overtake the likelihood of a Frontier deal," the JPMorgan analysts said in a note published on Thursday.
The comments came days after Spirit postponed a shareholder vote on its merger with Frontier to June 30 from June 10.
JetBlue has sweetened its offer for Spirit by increasing its reverse break-up fee by $150 million to $350 million, raising the overall value of its proposed deal to $3.4 billion. The New York-based airline has also offered to pay a portion of the fee upfront after Spirit shareholders approve the deal.
Frontier has agreed to pay Spirit a break-up fee of $250 million. However, it declined to raise its bid in response to JetBlue's revised offer.
Shareholder advisory firm Institutional Shareholder Services (ISS) has urged Spirit shareholders to vote against the deal with Frontier as it reckons JetBlue's deal offers them better value. But if Frontier opts to match JetBlue's break-up fee, ISS said the shareholders can back its deal.
Spirit has repeatedly rejected JetBlue's offer, saying it has a low likelihood of winning approval from U.S. regulators.
JetBlue's "Northeast Alliance" (NEA) partnership with American Airlines is a sticking point with Spirit.
The Justice Department has sued JetBlue and American to unwind the partnership. Spirit has asked JetBlue to drop the partnership if it wants a deal, but JetBlue has, thus far, declined.
The JPMorgan analysts said JetBlue would be willing to trade away the NEA partnership for a merger with Spirit.
"Mergers are transformational by design," they said.
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