Spirit ends sale to Frontier as talks with JetBlue continue

July 27 (Reuters) – Spirit Airlines Inc (SAVE.N) canceled its $2.7 billion sale to Frontier Group Holdings Inc (ULCC.O) on Wednesday after Spirit’s shareholders refused to back it, leaving JetBlue Airways Corp (JBLU) .o) open one to close a deal.

The development, first reported by Reuters on Wednesday, came after Spirit reversed a shareholder vote on the Frontier deal four times, hoping it would gain enough support. Spirit had previously argued that antitrust regulators were unlikely to approve JetBlue’s $3.7 billion offer.

The result was a setback for Frontier and its chairman Bill Franke, who played a key role in kick-starting talks between the parties last year. Franke’s aviation-focused buyout company, Indigo Partners, is a major shareholder in Frontier.

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“While we are disappointed that Spirit Airlines shareholders failed to recognize the value and consumer potential inherent in our proposed combination, Frontier’s board of directors has taken a disciplined approach,” Franke said in a statement.

A Frontier-Spirit combination would have reshaped the domestic travel landscape and marked the most sweeping merger in the U.S. airline industry since Alaska Air Group bought Virgin America Inc for $2.6 billion in 2016.

JetBlue sees Spirit as an opportunity to expand its domestic footprint at a time when the U.S. airline industry is plagued by personnel and aircraft shortages.

A sale of Spirit to Frontier or JetBlue would create the fifth largest US airline. Negotiations between JetBlue and Spirit are progressing well and a deal is possible in the coming weeks, according to acquaintances.

“We are pleased that the merger agreement with Frontier has ended and we are in ongoing discussions with Spirit to reach a consensual agreement as soon as possible,” JetBlue said in a statement.

But Spirit could also choose to remain independent.

ANTITRUST RISK

Spirit has expressed concern about the JetBlue Northeast Alliance (NEA) partnership with American Airlines (AAL.O). The US Department of Justice filed an antitrust lawsuit against American and JetBlue in September to end the alliance, saying it would lead to higher fares at busy airports in the northeastern US.

JetBlue has so far refused to pull out of the alliance, offering other sweeteners instead, such as a higher cancellation fee and route shedding.

Frontier shares were up 6.4%, closing at $11.27 as investors expressed relief that the company had exited the bidding war for Spirit. Spirit shares were up 4% to $24.30, while JetBlue shares were up 3.6% to $8.35.

With the end of the proposed partnership between Spirit and Frontier, Spirit will pay Frontier $25 million for merger-related costs it has incurred. Under the terms of the deal, Spirit Frontier would owe an additional $69 million if it enters into a merger deal with JetBlue or another competitor within the next 12 months.

“Now that Spirit Airlines has ended the merger agreement with Frontier, we hope Frontier’s management will put aside the distractions of the merger and devote the same amount of resources and attention to improving conditions at their own airline,” the Frontier Pilots said. ‘ Union. a subset of the Air Line Pilots Association (ALPA).

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Reporting by Anirban Sen and Greg Roumeliotis in New York, additional reporting by David Shepardson Editing by Chizu Nomiyama, Will Dunham, Matthew Lewis and David Gregorio

Our Standards: The Thomson Reuters Trust Principles.

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