Spirit Airlines and Frontier Airlines to merge, creating nation's 5th largest carrier

FILE PHOTOS - (L) A Spirit Airlines Airbus A319 at McCarran International Airport, Las Vegas, on Jan. 14, 2020. (Photo by Robert Smith/MI News/NurPhoto via Getty Images) (R) Frontier Airlines Airbus A320 takes off from Los Angeles International Airpo

Frontier Airlines and Spirit Airlines announced a merger on Monday in a $2.9 billion cash-and-stock deal that would create the fifth-largest airline in the United States, making Spirit Airlines’ stock soar on Wall Street. 

Frontier Group Holdings, Inc., the parent company of Frontier, is buying Spirit in a deal valued at $6.6 billion when accounting for the assumption of debt and other liabilities.

The companies said Monday in a statement that the transaction will provide more low-cost fares for more travelers to destinations in the U.S., Latin America and the Caribbean, "including major cities as well as underserved communities."

The combined airline is expected to offer more than 1,000 daily flights to over 145 destinations in 19 countries, across its networks, the statement said.

Frontier Group Holdings Inc. and Spirit Airlines Inc. also anticipate $1 billion in annual consumer savings and are looking to expand their services with more than 350 aircraft on order. 

Mac Gardner, Spirit’s chairman of the board, called the two airlines "a perfect fit," noting how the businesses "share similar values, including our longstanding commitment to affordable travel."

"At the same time, we have complementary footprints and fleets, including one of the youngest and greenest fleets worldwide," Gardner said in a statement. "Together, we will be even more competitive for our Guests and our Team Members, and we are confident we can deliver on the benefits of this combination to consumers."

Existing Frontier shareholders will own approximately 51.5% and existing Spirit stockholders will own approximately 48.5% of the combined airline. The transaction is expected to close in the second half of the year. It still needs approval from Spirit shareholders.

Spirit shareholders will receive 1.9126 shares of Frontier plus $2.13 in cash for each existing Spirit share they own. This implies a value of $25.83 per Spirit share at Frontier’s closing stock price of $12.39 on Friday.

The combined company is expected to have annual revenues of approximately $5.3 billion, based on last year's results. Its board will include seven members named by Frontier and five members named by Spirit. Frontier Chair William Franke will serve as chairman of the combined company.

The name that the combined company will use has yet to be determined, Christie told CNBC. Its headquarters will be determined by a committee led by Franke prior to the transaction's closing.

The carriers may be in for a very close look by antimonopoly regulators. The Biden administration has signaled a tougher line against big corporate mergers. Yet airlines have suffered a devastating stretch during the coronavirus pandemic despite assistance from the U.S., and are in a weakened position heading into 2022.

Shares of Frontier, based in Denver, slipped 2.1% before the opening bell. Shares of Spirit, based in Miami, jumped 12.3%.

The Associated Press contributed to this report. It was reported from Cincinnati.