(Reuters) -Budget carriers Frontier Group Holdings and Spirit Airlines Inc on Monday unveiled plans to merge in a $2.9 billion deal that would create the fifth-largest U.S. airline and tighten competition against traditional carriers.

The tie-up combines stablemates of legendary airline investor Bill Franke, a pioneer of rock-bottom fares coupled with top-up charges offered by ultra low-cost carriers (ULCC).

Such airlines are a tier below Southwest Airlines, which pioneered the low-cost concept in the 1970s, and have continued to expand during the COVID-19 pandemic at the expense of larger rivals.

The companies expect the cash-and-stock deal to accelerate investment and help take on major U.S. airlines like American Airlines Group, Delta Air Lines, Southwest Airlines and United Airlines Holdings.

Shares of major U.S. airlines rose between 1.3% to 1.8% in premarket trade.

The Frontier-controlled business is seen adding 10,000 direct jobs by 2026, the companies said, adding that they expect to deliver $1 billion in annual consumer savings and offer more than 1,000 daily flights to over 145 destinations.

The transaction value of the deal is $6.6 billion including the assumption of net debt and operating lease liabilities, the carriers said in a statement.

Colorado-based Frontier will own 51.5% stake in the combined entity, while the remaining 48.5% will be held by Spirit’s shareholders.

Spirit, which was trading at $44 before the onset of the pandemic in February 2020, was offered to be bought at $25.83 per share, which represents a premium of 18.8% to the stock’s last close on Friday.

The announcement comes as major U.S. airlines project profitability in 2022 due to higher vaccination rates and reopening of economies after pandemic-led lockdowns and emergence of new variants hit their business.

Spirit shares were trading 12% higher at $24.43 in premarket trade.

Spirit and Frontier operate Airbus jets and participated in a 255-plane order spearheaded by Franke’s private equity firm, Indigo Partners, at the Dubai Airshow in November.

Franke will be chairman of the new airline, whose name has not been announced.

(Reporting by Aishwarya Nair in Bengaluru; editing by Uttaresh.V)