US budget carriers Frontier Group Holdings and Spirit Airlines has today unveiled plans to merge in a $2.9 billion deal.
The deal will create the fifth-largest US airline and tighten competition against traditional carriers.
The tie-up combines stablemates of legendary airline investor Bill Franke, a pioneer of rock-bottom fares coupled with top-up charges offered by ultra low-cost carriers (ULCC).
Such airlines are a tier below Southwest Airlines, which pioneered the low-cost concept in the 1970s, and have continued to expand during the Covid-19 pandemic at the expense of larger rivals.
The companies expect the cash-and-stock deal to accelerate investment and help take on major US airlines like American Airlines Group, Delta Air Lines, Southwest Airlines and United Airlines Holdings.
The Frontier-controlled business is seen adding 10,000 direct jobs by 2026, the companies said, adding that they expect to deliver $1 billion in annual consumer savings and offer more than 1,000 daily flights to over 145 destinations.
The transaction value of the deal is $6.6 billion including the assumption of net debt and operating lease liabilities, the carriers said in a statement.
Colorado-based Frontier will own 51.5% stake in the combined entity, while the remaining 48.5% will be held by Spirit's shareholders.
Spirit, which was trading at $44 before the onset of the pandemic in February 2020, was offered to be bought at $25.83 per share, which represents a premium of 18.8% to the stock's last close on Friday.
The announcement comes as major US airlines project profitability in 2022 due to higher vaccination rates and reopening of economies after pandemic-led lockdowns and emergence of new variants hit their business.
Spirit and Frontier operate Airbus jets and participated in a 255-plane order spearheaded by Franke's private equity firm, Indigo Partners, at the Dubai Airshow in November)
Franke will be chairman of the new airline, whose name has not been announced.
