Breakingviews: JetBlue has its “Top Gun: Maverick” moment

Airborne stunts are in fashion, thanks to Tom Cruise’s movie “Top Gun: Maverick.” JetBlue Airways (JBLU.O), in its bid to acquire rival budget carrier Spirit Airlines (SAVE.N), is busting some aerobatic moves of its own. Having stretched to the limit on price, it’s now offering to pay Spirit more of its all-cash offer up-front, whether its $3.6 billion deal closes or not. This is daring but increasingly costly for JetBlue’s own investors.

JetBlue’s goal is to shoot down Spirit’s agreed deal with Frontier (ULCC.O), another low-cost airline. Spirit investors are set to vote on that tie-up on Thursday. After months of dogfighting, both suitors are now offering sizeable payments in the event that the Department of Justice blocks their deals on antitrust grounds. They’re also both offering immediate cash dividends, which will pay a portion of either the merger consideration or that regulatory break fee immediately.

JetBlue has now gone one better, not only further bumping its break fee but also offering a so-called “ticking fee,” which will see it pay additional dividends every month that the deal is pending beyond January 2023. These are early payments rather than additions to the $3.6 billion headline number, but if things drag on for a year or more, the ticking fee will start to be a bonus that increases the all-in price. It’s the kind of innovation borne of desperation – shareholder advisory firms had moved in favor of Frontier’s offer – but it might be enough. At least one big Spirit shareholder plans to vote against the Frontier deal.

What’s really happening is that the bidders, unable to offer much more money, are adding more certainty instead. Upfront payments mean Spirit shareholders get something, no matter what. Frontier may yet raise its own offer further in a similar way. But the cost of offering that certainty is shouldered by JetBlue or Frontier shareholders, who don’t get a say on the deal. JetBlue shares have underperformed the broader industry since launching its hostile bid in April, down over 35% while the NYSE ARCA airline index is down nearly 28%. Frontier shares dipped 11% on Monday after it increased its bid. From the cockpit, consolidation among airlines may look like a do-or-die mission; from the ground, it looks like a ride into the danger zone.

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(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

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