JetBlue Bid for Spirit Is Driven by Hunger for a ‘Stealth’ Asset: Plane Orders

(Bloomberg) -- Spirit Airlines Inc. has what one analyst calls a “stealth” asset, the opportunity for JetBlue Airways Corp. to grab scarce aircraft if its $3.6 billion offer goes through.

A lack of future production slots for Airbus SE jets could limit growth at a stand-alone JetBlue, Chief Executive Officer Robin Hayes said Wednesday, a day after his carrier's bid was announced. JetBlue's offer is based on growing large enough to be an effective competitor to the four biggest U.S. carriers, which control about 80% of the domestic market.

Combining existing JetBlue and Spirit orders is critical for that growth, Hayes said.

“The supply of airplanes is very challenging for the next few years,” he said on a conference call with analysts. “This sets us up with a compelling order book.” Airbus already makes up most of both carriers' fleets.

Airbus customers face a wait of two to three years for A320 delivery slots. The backlog stood at 5,765 of the narrow-body jet at the end of December, including 3,323 for the popular A321neo. Spirit has orders for 120 of the A320 to be delivered through 2027, according to regulatory filings. 

That makes Spirit's order book “a stealth undervalued asset,” JPMorgan Chase analyst Jamie Baker said in a note to clients.

The shortage of Airbus and Boeing Co. jets is a widespread problem, as Air Lease Corp. CEO John Plueger pointed out at an industry conference last month. “If carriers are looking for lift in '23 and '24, there's not a lot left.”

JetBlue has orders for 64 A321s, plus 62 of Airbus's smaller A220 aircraft. A combined airline would have 455 planes and 312 Airbus jets to be delivered over the next six years, JetBlue said, “mitigating the persistent challenge” of limited production.

Getting hold of Spirit's existing fleet will carry extra costs, however.

JetBlue would need to convert Spirit's tightly packed aircraft to its own seat configuration. The change would require removing nearly 10% of the seats from the full Spirit fleet, said Conor Cunningham, an analyst at MKM Partners. JetBlue also would have to repaint and add its in-flight entertainment system to Spirit planes. 

“Despite having a common fleet focus on the A320 family, that's about where the similarities end,” Cunningham said. “A retrofitting of the Spirit fleet to JetBlue specs would be expensive.”

JetBlue declined to lay out projected costs for conversions.

See also: Jet Airways Coming Back With Premium and No Frills Hybrid Model

The deal would give JetBlue access to a pool of qualified pilots at a time of an industrywide shortage. Hayes sees the tight market persisting for the next two to three years, a factor that could limit independent expansion.

As with the fleet expansion, bringing on more pilots also comes with added costs, particularly if the carrier moves Spirit workers to the higher wages at JetBlue. Captains are paid on average about 12.8% more at JetBlue than Spirit, and first officers make about 13.4% more, Cunningham said.

“Both airlines are looking to grow and aggressively hire to meet that growth,” he said. “As a result, rather than compete for a similar pool, a combined airline could be more attractive.”

©2022 Bloomberg L.P.