H. Mclntyre Gardner
Chairman of the Board
Edward M. Christie Ill
President and Chief Executive Officer
Spirit Airlines, Inc.
2800 Executive Way
Miramar, FL 33025
April 29, 2022
Dear Mr. Gardner and Mr. Christie:
On behalf of JetBlue Airways Corporation ("JetBlue"), we are pleased to submit an update to our
proposal dated March 29, 2022 (such proposal, our "March Proposal," and together with this letter,
our "Proposal") to acquire all of the outstanding common stock of Spirit Airlines, Inc. ("Spirit") for
$33 per share in cash.
Acquiring Spirit has been a strategic objective of JetBlue for many years and, as such, we were
disappointed that the Spirit Board of Directors (the "Spirit Board") elected not to have any
discussions with us prior to the announcement of Sprit's transaction with Frontier Group Holdings,
Inc. ("Frontier"). This lack of engagement regrettably resulted in Spirit entering into a transaction
with Frontier that clearly does not maximize value for Spirit's stockholders.
Following the determination of the Spirit Board on April 7, 2022 that our March Proposal could
reasonably be likely to lead to a Superior Proposal', we have been ready, willing and able to work
diligently with your team to complete a negotiated transaction. That said, while we appreciate the
limited information received to date and time spent by your management team, we have been
disappointed by the lack of progress made since submitting our March Proposal, including the fact
that you have not facilitated the finalization of a customary clean team agreement, a precursor to
completing the limited diligence necessary to deliver to you and your stockholders a finalized
"Superior Proposal" for you to accept. By not receiving access to the basic diligence information
that was provided to Frontier, and that we requested in order to finalize a proposed transaction, we
firmly believe your stockholders are being disadvantaged
Our legal counsel has spent considerable time discussing with your counsel the outcome of our
regulatory analysis and the basis of our conviction in our ability to complete the proposed
transaction, summarized below. Despite these discussions, on April 25, 2022, you communicated
to us what you described as contractual precursors relating to the regulatory components of our
proposal to your willingness to share the diligence information we have requested. Your demands,
including a "hell or high water" antitrust commitment, which is unprecedented in airline transactions,
and a reverse break-up fee that exceeds almost all precedent transactions, are off-market and
contrast starkly to the limited regulatory commitments made by Frontier, a transaction with a similar
regulatory profile
Nonetheless, to be responsive to your expressed concerns regarding JetBlue's ability to
consummate a transaction, we are enclosing a merger agreement (our "Proposed Merger
Agreement") that includes our proposed regulatory efforts covenant, the amount of the reverse
consistent with precedent airline transactions that are fundamentally more favorable for Sprit
stockholders than those contained in the Frontier Agreement. Importantly, as more fully described
in our Proposed Merger Agreement, JetBlue is prepared to agree to the following terms:
8
Regulatory Covenant: we are willing to commit to use our reasonable best efforts to obtain
regulatory approval, with an express obligation to litigate and to divest assets of JetBlue
and Spirit up to a material adverse effect on Spirit, with a limited carve-out to this divestiture
obligation for actions that would represent a "Burdensome Condition" under JetBlue's
Northeast Alliance; and
Reverse Break-Up Fee: a $200 million reverse break-up fee, representing approximately
~$1.80 per Spirit share, that would become payable to Spirit in the unlikely event our
transaction is not consummated for antitrust reasons. This amount represents
approximately 8% of Spirit's share price on February 4, 2022, before the announcement of
the Frontier transaction, and approximately 45% of the original premium paid by Frontier.
Both these concessions are far superior compared to those contemplated by the Frontier
Agreement, as:
Frontier is not required to undertake any divestitures to obtain the necessary regulatory
approvals to close its transaction, despite having greater overlap with Spirit on non-stop
routes than JetBlue does, among other regulatory hurdles; and
Frontier is not required to pay a reverse break-up fee if the transaction is not consummated
for antitrust reasons.
In addition to these contractual commitments more favorable than those offered by Frontier, in
order to address the concerns identified by your counsel, we will proactively offer to the DOJ a
remedy package that contemplates the divestiture of all Spirit assets located in New York and
Boston so, as a result of the transaction, we do not increase our presence in the airports covered
by our Northeast Alliance, as well as gates and related assets at other airports, including Fort
Lauderdale.
The absence both of meaningful remedial obligations and a reverse break-up fee in the Frontier
Agreement mean that despite obvious hurdles for its own transaction, Frontier, at its own option,
could simply decline to make any regulatory concessions and abandon the transaction at no cost
(or compensation to Spirit or its stockholders). In stark contrast to the transaction with Frontier, our
Proposed Merger Agreement offers Spirit and its stockholders a clear path to completion based on
its merits, critical commitments to consummate our proposed transaction according to its terms,
and in the unlikely event it is not, financial compensation for Spirit. We firmly believe that it is in
the best interest of your stockholders for you to accept our Proposal, which has significantly greater
odds of achieving regulatory clearance given the stronger regulatory commitment on our part
compared to Frontier.
Updated Proposal Continues to Represent Superior Value for Spirit Stockholders
Let me also remind you of the superior value that our Proposal offers Spirit stockholders: $33 in
cash per common share, which implies a total Equity Value for Spirit of $3.6 billion and an
Enterprise Value of $7.3 billion.5 This represents:
break-up fee and those other matters necessary to reflect the terms of our Proposal. The regulatory
commitments in our Proposed Merger Agreement represent a significant improvement from those
offered by Frontier and demonstrate both our confidence in our ability to obtain the required
regulatory approvals, as well as our commitment to deliver substantial value to your stockholders.
We firmly believe these additional terms, as described below, further improve our Proposal,
enhancing its already clear superiority to the transaction with Frontier, and provide the Spirit Board
with the necessary comfort around the certainty of closing our proposed transaction.
Our Proposal offers Spirit stockholders both superior financial value and greater certainty than the
Frontier transaction - we therefore fully expect the Spirit Board to allow us to complete our due
diligence, finalize the definitive transaction documentation and conclude that our Proposal is a
Superior Proposal. Any different outcome would be puzzling and would deprive your stockholders
of the most attractive value creating opportunity available to them. It is inconceivable to us that the
Spirit Board would conclude that the Frontier transaction with no regulatory commitments would
have greater odds of regulatory approval than our Proposal, given our meaningful requlatory
commitment and reverse break-up fee, or that Spirit's stockholders would prefer the ~$22 per share
value? of the Frontier transaction to our Proposal of $33 per share in cash
Proposed Merger Agreement with Strong Regulatory Commitments
As our legal counsel and our economists have shared with your advisors over the last few weeks,
for the reasons discussed below, we are highly confident that we will obtain the necessary
regulatory clearances in approximately the same timeframe from entering into a definitive
agreement as the proposed transaction with Frontier. We expect the Spirit Board will take this
information into account when assessing our Proposal.
More generally, we disagree with any assessment that our Proposal presents significantly more
regulatory risk than the Frontier transaction. To the contrary, a combined JetBlue-Spirit will create
a more compelling and viable competitor to the big four carriers that control more than 80% of the
U.S. market. Additionally, JetBlue's entry into new routes triggers fare decreases from legacy
airlines that are more significant than those resulting from ultra-low-cost carriers; this phenomenon
has been described as the "JetBlue Effect". Our recent economic analysis shows JetBlue's
presence on a nonstop route decreases legacy fares by ~16%, about three times as much as the
presence of an ultra-low-cost carrier on the same route. We believe that JetBlue's expedited
expansion and the resulting net fare decreases, coupled with the demonstrated ease of other ultra-
low-cost carriers' continued expansion and the divestitures we are prepared to undertake, will
address any regulatory concerns that the Spirit Board, the regulators, and the courts may have.
In addition:
Both transactions would create the number 5 airline carrier; a combined JetBlue and Spirit
would have a 9% market share based on full year 2022 seats compared to 8% for a
combined Frontier and Spirit;
JetBlue overlaps with Spirit only on 48 nonstop routes compared to Spirit and Frontier's
overlap on 76 nonstop routes?; and
JetBlue has also less overlap in flights, seats, and ASMs than Frontier in the metropolitan
areas served by both.4
To be responsive, however, to the Spirit Board's concerns regarding closing certainty, in addition
to the superior cash price, our Proposed Merger Agreement includes regulatory commitments
a 52%® premium to Spirit's closing share price as of February 4, 2022 (the last trading day
prior to Spirit's announcement of its proposed transaction with Frontier):
a 50%7 premium to Spirit's closing share price as of April 4, 2022 (the last trading day
before our March Proposal being publicly disclosed); and
a 47%8 premium to the implied value of the proposed transaction with Frontier on April 28
2022.
Our Proposal clearly provides superior economic value to the transaction with Frontier, including
value certainty and immediate liquidity for your stockholders given the all-cash consideration, and
avoids the inherent uncertainty in the Frontier stock-for-stock transaction. The value of Frontier's
stock is subject to significant risks related to the realization of meaningful synergies, complex
integration plans, retention of key employees, as well as an industry-wide challenging operating
environment and market conditions. The market clearly appreciates these risks, with the value of
the Frontier stock declining from $12.39 on February 4, 2022 to $10.62 on April 28, 2022 (a
decrease of 14.3%, underperforming the airline index which increased by 4.8%° over the same
period).
The value of the Frontier transaction has declined from $25.83 to $22.44 over the same period
resulting in approximately $370 million of value erosion for the Spirit stockholders. Additionally,
having had the opportunity to review the Spirit financial projections underpinning the transaction
with Frontier, we believe those projections to be based on unrealistically optimistic assumptions,
including, in particular, with respect to personnel attrition and wage inflation. The market more
broadly shares our skepticism in the Spirit projections:
Frontier's and Spirit's management forecasts for their combined EBITDAR for 2022 and
2023 are higher than analysts' consensus estimates by approximately 25%;
Since Spirit's projections were made public in the joint proxy statement/registration
statement for the transaction, no analyst increased its forecasts for EBITDAR and the
Frontier stock price declined 3.5% on the day, demonstrating how investors are giving little
credit to the companies' forecasts; and
The average target price from analysts covering Frontier has declined by approximately
18% since the announcement of the transaction with Spirit.
The market has no confidence in those projections, gives little credit to future synergies, and
significantly discounts the future value creation of the Frontier transaction. We firmly believe that
Spirit stockholders would be in a far superior position receiving our riskless, substantial cash
premium.
Compelling Strategic Rationale and Unique Opportunity for Spirit Team Members
Despite our questions regarding the projected financial information we have seen, we remain
committed to the strong strategic rationale of combining our two businesses: enhanced scale,
differentiated customer offering, route expansion, increased relevance of the network, creation of
a new strategic hub in Fort Lauderdale and more financial flexibility will allow the combined
company to compete with "Big Four" carriers more effectivelv.
Additionally, the transaction will better position the combined company to tackle the challenges
specific to the current environment, such as aircraft and pilot shortages, and elevated cost inflation,
which can be mitigated with increased scale. A larger and more flexible network will also enable
more reliable and less volatile operations.
We also look forward to onboarding the Spirit Team Members. We expect they will be instrumental
in executing the integration following the transaction. A combined JetBlue / Spirit will deploy best
practices across the enlarged business, and we would look to select the best-in-class team.
Summary and Next Steps
Our Proposal represents a compelling opportunity for your stockholders to receive a
significant premium in cash, with greater value and certainty than the proposed transaction
with Frontier. The additional terms of our Proposal, as reflected herein and in the Proposed
Merger Agreement, further widen the gap and unequivocally provide superior value and certainty
to Spirit stockholders, making our Proposal definitively a Superior Proposal. We strongly believe
that accepting our Proposal is in the best interests of your stockholders, and we urge you to
consider it in order for them to realize the substantial benefits of our transaction. Any further delav
in allowing us access to the limited information we need to complete our diligence will deprive your
stockholders of the opportunity to benefit from a transaction that is clearly superior to your current
transaction.
We are willing to move swiftly to finalize our proposed transaction and we hope that we can continue
to work together to achieve the optimal outcome for your stockholders, customers and Team
Members.
We expect that the finalization of definitive documentation and confirmatory due
diligence, alongside obtaining committed financing, will be completed expeditiously through access
to the limited information we originally requested, which we have attached to this letter. We and
our advisors remain ready and available to discuss and promptly finalize the terms of our clearly
superior proposal.
Given the opportunity to benefit from the significant cash premium and immediate liquidity, we are
confident that the Spirit stockholders will embrace our Proposal, as evidenced by the Spirit stock
price reaction upon the disclosure of our Proposal on April 5. While we would unquestionably prefer
to negotiate a transaction with you, if you continue to refuse to constructively engage with us so
that we can deliver this value to your stockholders, we are actively considering all other options
available to us.
Other
All information contained herein or related to the contents of this letter, including the terms of our
Proposal, are subject to the terms of the Confidentiality Agreement, dated as of April 8, 2022, by
and between Spirit and JetBlue. This letter is not intended to be and is not a binding contract
between us or an offer by us capable of acceptance, and there will be no legally binding contract
or agreement between JetBlue and Spirit regarding a transaction unless and until a definitive
agreement is executed and delivered.
Sincerely,
/s/ Robin Hayes
Chief Executive Officer
© Represents premium over Spirit's $21.73 closing share price on February 4, 2022.
" Represents premium over Spirit's $21.99 closing share price on April 4, 2022.
8 Represents premium over $22.44 implied value of Frontier transaction as of April 28, 2022
° Represents performance of US GLOBAL JETS INDEX between February 4 and April 28, 2022.
I dont think we have ever seen the inner makings of a merger discussion out in the open like this.
Jetblue admits they have been aiming for NK for years and they also insinuate that NK’s management is acting suspiciously.
