Spirit ends sale to Frontier as JetBlue talks 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 shareholders refused to support it, leaving JetBlue Airways Corp. (JBLU.O) With the opening to conclude a deal.

The development, first reported by Reuters on Wednesday, came after Spirit backed away from a shareholder vote on the Frontier deal four times, hoping it would have enough support. Spirit has previously argued that antitrust regulators are unlikely to clear JetBlue’s $3.7 billion bid.

The result was a setback for Frontier and its president, Bill Frank, who was instrumental in initiating talks between the two sides last year. Frank’s airline-focused company, Indigo Partners, is a major shareholder in Frontier.

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

The Frontier-Spirit merger would have reshaped the domestic travel landscape and represented the largest merger in the US aviation industry since the Alaska Air Group bought Virgin America for $2.6 billion in 2016.

JetBlue sees Spirit as an opportunity to expand its domestic presence at a time when the US airline industry is suffering from a shortage of labor and aircraft.

Selling Spirit to Frontier or JetBlue would create the fifth largest US airline. Negotiations between JetBlue and Spirit are progressing positively and an agreement could be reached in the next few weeks, according to people familiar with the matter.

“We are pleased to finalize our merger agreement with Frontier and are engaged in ongoing discussions with Spirit to reach a compromise agreement as soon as possible,” JetBlue said in a statement.

But the soul can also choose to remain independent.

Antitrust risk

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

JetBlue has so far refused to withdraw from the alliance and has instead offered other sweeteners such as higher break-up fees and route liquidation.

Frontier shares rose 6.4% to close at $11.27 as investors expressed relief at the company’s exit from what became a bidding war on Spirit. Spirit shares rose 4% to $24.30, while JetBlue shares rose 3.6% to $8.35.

With the end of Spirit-Frontier’s proposed partnership agreement, Spirit will pay $25 million for its merger-related costs. Under the terms of the deal, Spirit will owe Frontier an additional $69 million if it ends up concluding a merger deal with JetBlue or another competitor within the next 12 months.

“Now that Spirit Airlines has finalized the Frontier merger agreement, we hope that Frontier management will put aside its distraction from the merger and invest the same amount of resources and focus on improving conditions at its own airlines,” the Frontier Pilots Association said. A subset of the Airline Pilots Association (ALPA).

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

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