Spirit Faces a Rough Road After Failed Merger With JetBlue

18.01.2024 - 20:20 / skift.com / Spirit Airlines / Henry Harteveldt / Helane Becker / Meghna Maharishi

Spirit Airlines was once a golden child of the airline industry. But now that a judge has blocked its proposed merger with JetBlue, Spirit is on its own to deal with declining revenues and rising operating costs. 

The airline hasn’t been profitable since 2019 and several analysts say it likely needs to find a buyer or another way to strengthen its financial situation.

“We believe Spirit is likely to look for another buyer,” TD Cowen analyst Helane Becker wrote in a note to investors on Tuesday, “but a more likely scenario is a Chapter 11 filing, followed by a liquidation.”

Fitch Ratings said in a report that Spirit’s credit profile was “under pressure.”

“We believe that Spirit needs to clearly articulate a near-term plan to preserve and generate liquidity, address its refinancing risk, and improve profitability to avoid a negative rating action,” the Fitch report said.

The Wall Street Journal reported on Thursday that Spirit was exploring “restructuring options” related to the need to refinance its debt, citing people familiar with the matter.

Spirit shares plunged by nearly 28% following the WSJ report. Since the ruling, Spirit shares have fallen by nearly 70%. 

Frontier Airlines, which originally sought to merge with Spirit in 2022 before JetBlue launched a hostile takeover offer, could be a potential buyer. However, some industry analysts have said it may be more difficult now for Frontier to make a bid, since it is also in a financially weaker position compared to 2022. 

“The problem is Frontier’s finances are not as good as they once were, either,” said Henry Harteveldt, president of market research firm Atmosphere Research Group. “So it’s not necessarily assured that Frontier would be able to move forward with a merger deal.”

Spirit did not say whether it would resume talks with Frontier. The carrier said it was evaluating next steps to shore up its balance sheet and operations. “While we are disappointed with this outcome, we are confident in our strengths and strategy,” the company said in a statement.

Frontier declined to comment.

Spirit has struggled with declining revenues following a post-pandemic sluggish demand for domestic travel, rising operating costs and supply chain issues. Since 2019, the carrier has lost more than $1.6 billion. 

Here are a few of the key issues Spirit faces: 

Spirit has a staggering $1.1 billion in debt due in September 2025 and it faces significant risks in refinancing that debt, according to the Fitch Ratings report.

To bolster its liquidity, Spirit recently sold 25 aircraft and leased them back. That allowed the carrier to pay down $465 million in debt and net $419 million in cash. In its third quarter earnings report, Spirit said it also identified $100