By Alison Sider

Frontier Airlines is making another run at a deal for struggling rival discounter Spirit Airlines.

Spirit filed for bankruptcy in November after years of losses, mounting questions about its business model, and a failed sale to JetBlue. Now Frontier is trying to persuade Spirit's bondholders that they will be better off if the two budget airlines combine than if Spirit tries to go it alone after exiting chapter 11.

"We continue to believe that under the current stand-alone plan, Spirit will emerge highly levered, losing money at the operating level, and this would not be a transaction we would pursue," Frontier Chairman Bill Franke and Chief Executive Officer Barry Biffle wrote to their counterparts at Spirit on Tuesday. "As a result, time is of the essence."

Both companies disclosed the approach in securities filings Wednesday. The proposal is Frontier's latest gambit in a yearslong drive to join with Spirit. Frontier has said a merger would create the fifth-largest U.S. carrier -- a budget airline with enough heft to compete against bigger airlines that dominate the industry.

Frontier will have to overcome resistance from Spirit and its bondholders. Spirit said in its own filing that Frontier's plan was inferior to its own, and too risky.

"The Company has determined, barring new developments, not to further delay its planned emergence from Chapter 11," Spirit wrote.

Spirit CEO Ted Christie and Chairman Mac Gardner told Frontier on Jan. 11 that they agreed the two airlines together would be a "potent competitor," but said Frontier's offer was worse than what the two companies had discussed last year. The Spirit executives said they had discussed the proposal with advisers to its bondholders and they rejected it.

The two airlines were set to merge in 2022 until JetBlue swooped in with a higher offer. A federal judge rejected that tie-up last year. Frontier made another takeover bid last fall, but talks broke down shortly before Spirit filed for bankruptcy, The Wall Street Journal reported.

Spirit entered Chapter 11 with an agreement supported by holders of about 80% of the debt to be restructured, according to court documents.

Spirit has said it is on track to emerge from chapter 11 in the first quarter of this year . A bankruptcy court hearing on the company's reorganization plan is scheduled for Feb. 13.

Under Spirit's plan, creditors would receive $840 million in secured notes and would own all of Spirit's equity. Frontier said its proposal would give those creditors $400 million in notes and 19% of a combined airline it said would be much more valuable.

Frontier also said its proposal would also provide some recovery to Spirit shareholders, who would be wiped out if Spirit's bankruptcy progresses as planned.

Budget airlines have been struggling for months. They face stiffer competition for cost-conscious customers from larger competitors that have deployed their own bare-bones fares. An engine defect has also kept a portion of Spirit's fleet on the ground, stymying the rapid growth rate the carrier has long relied on. Some discount carriers, including Spirit and Frontier, have been retooling their strategies to appeal to more upscale fliers willing to pay more for amenities that the discounters didn't previously offer.

Spirit has also been trying to cut costs. Christie, the airline's CEO, told employees earlier this month that the airline was eliminating some 200 jobs to hit its target of $80 million in annual savings.

JetBlue's deal for Spirit ran aground after a federal judge sided with Biden administration antitrust enforcers, who argued that combining the two carriers would reduce competition on major routes and push up airfare for travelers.

Some airline industry analysts believed that Spirit and Frontier stood a better chance of regulatory approval. Dealmakers are looking to the Trump administration for a reset on antitrust policy, potentially opening the way to more deals.

Write to Alison Sider at alison.sider@wsj.com

(END) Dow Jones Newswires

January 29, 2025 07:24 ET (12:24 GMT)

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