The future looks bleak for Spirit Airlines as its stock takes another hit following a recent court ruling. After a federal judge sided with the Justice Department, blocking Spirit’s proposed merger with JetBlue Airways on antitrust grounds, the shares have plummeted by 59% in just two trading days.
In premarket trading on Thursday, the stock is expected to drop even further, down 4.7% to $5.85. The situation has also prompted Citi analyst Stephen Trent to downgrade Spirit’s shares to a Sell rating. Though there is still a possibility for an appeal, Trent believes it is unlikely that the two carriers would pursue it. He questions why JetBlue wouldn’t cut its losses and acknowledge that they have avoided a risky bid on a highly leveraged carrier with significant losses.
Furthermore, Trent highlights that without addressing its debt issues, it is improbable for Spirit to find another potential buyer. He points out that the net debt has skyrocketed from $3.3 billion to $5.5 billion over the past two years, making it crucial for Spirit to restructure its debt before attracting any potential suitors. In the meantime, Spirit is expected to face continued pressure on its operations due to lower unit revenue and higher costs this year.
Unfortunately for Spirit Airlines, Citi’s negative assessment is not an isolated opinion in the industry. The company has a challenging road ahead as it attempts to overcome these obstacles and improve its financial standing.
Spirit Airlines Faces Challenges
Credit ratings agency Fitch Ratings recently highlighted the significant refinancing risk that Spirit Airlines will face in the next year. The airline’s $1.1 billion loyalty program debt is due in September 2025. Fitch also pointed out several obstacles that Spirit Airlines must overcome to improve its profitability, including engine availability issues, overcapacity in certain leisure markets, and intense competition.
While Fitch didn’t revise its credit rating for Spirit Airlines, maintaining it at B/Negative, it emphasized the need for a near-term plan. The plan should focus on generating liquidity, addressing refinancing risk, and improving profitability to avoid a potential negative rating action.
Analyst Helane Becker from TD Cowen suggested that a Chapter 11 filing followed by a liquidation might be the best-case scenario for Spirit Airlines.
In a recent sale-leaseback transaction involving 25 jets, Spirit Airlines managed to raise $419 million in cash. However, according to Citi analyst Trent, this injection of funds may only provide temporary relief for the airline’s financial challenges.
Spirit Airlines has not yet responded to requests for comment.