US low-cost carrier Frontier has agreed to acquire rival Spirit for $6.6 billion, including net debt.

If the deal is finalised, it will be the first large airline merger since the aviation industry was rocked in 2020 by travel bans and lockdowns introduced to stem the spread of Covid-19.

Under the terms of the agreement, Spirit shareholders will receive 1.9 shares of Frontier plus $2.13 in cash per Spirit share.

At a $25.8 per share valuation, Spirit shareholders will be paid a 19 per cent premium over the closing price on February 4th.

If the deal is approved, the new company will be 51.5 per cent owned by Frontier, while the remainder will be held by Spirit.

Together, Frontier and Spirit said they “expect to change the industry for the benefit of consumers, bringing more ultra-low fares to more travellers in more destinations across the United States, Latin America and the Caribbean”.

However, things got off to an inauspicious start, with Frontier forced to ground all of its US flights due to “automation issues” in the hours following the announcement.

William Franke, chair of the Frontier board and the managing partner of Indigo Partners, the majority shareholder in Frontier, noted that Indigo has a long history with both Spirit and Frontier.

“We worked jointly with the board of directors and senior management team across both carriers to arrive at a combination of two complementary businesses that together will create America’s most competitive ultra-low fare airline for the benefit of consumers,” he said.

The deal raises possible anti-trust concerns, with the Biden administration working to boost competitiveness in the United States market.

However, there are only 519 routes currently served by both airlines, out of 2,832 combined routes, according to aviation analytics firm Cirium.

That is equal to just 18 per cent of their routes, suggesting a combination will have only limited impact on reducing competition for passengers.

“We are thrilled to join forces with Frontier to further democratise air travel,” said Ted Christie, chief executive of Spirit.

Like most of the US airline industry, Spirit and Frontier have been struggling with losses the last two years as air travel plunged during the Covid-19 pandemic.

On Monday, Spirit reported a 2021 loss of $440 million, excluding special items, such as federal assistance that went to all US airlines.

That was an improvement from the $719.6 million it lost on that basis in 2020.

Frontier reported it lost $299 million on that basis in 2021, roughly the same as in 2020.