Shares of Spirit Airlines (NYSE: SAVE) took a nosedive by more than 22% on Wednesday, a day after a U.S. judge halted the airline’s planned $3.8 billion merger with rival JetBlue Airways.
The judge’s decision, backed by the U.S. Department of Justice, followed concerns that the proposed deal with JetBlue Airways Corporation (NASDAQ: JBLU) would negatively impact ticket buyers. As a result, Spirit’s stock took a severe hit, losing nearly half of its market value on Tuesday, leaving the company uncertain about its future.
Analysts suggest the company may seek alternative buyers or even consider filing for bankruptcy.
Spirit Airlines (NYSE: SAVE) grapples with profitability issues amid rising operating expenses and ongoing supply chain issues. This has raised concerns about the airline’s ability to repay its outstanding debt, which is set to mature next year.
Some analysts speculate that a bankruptcy filing could be on the horizon for Spirit, seen as a move to streamline its finances and emerge as a financially stable airline. TD Cowen analyst Helane Becker suggests that the best-case scenario for Spirit would involve a Chapter 11 filing followed by liquidation (Chapter 7).
Analysts, including Stephen Trent from Citi, highlight that both airlines now face critical strategic and financial decisions in response to the failed merger. A successful deal with JetBlue would have positioned them as the fifth-largest carrier in the U.S.
Deutsche Bank analysts express skepticism about the merger’s likelihood, citing regulatory hurdles, even if the airlines decide to appeal the judge’s decision.
Spirit has been particularly impacted by issues with RTX’s Pratt & Whitney Geared Turbofan (GTF) engines, leading to the grounding of several jets. This problem is expected to worsen in 2024. In addition, excess capacity in key markets has weakened Spirit’s pricing power, forcing the airline to implement significant discounts to sell enough seats.
J.P. Morgan equity analyst Jamie Baker sees little valuation support for Spirit Airlines without a merger.
Spirit’s enterprise value to sales ratio for the next 12 months is 1.3, compared to JetBlue’s 0.6, indicating a less attractive investment opportunity.
Both airlines have the option to appeal the judge’s ruling. In a joint statement, JetBlue and Spirit mentioned that they are currently evaluating “next steps as part of the legal process.”
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