- Spirit Airlines jumps nearly 20% on deal blocker appeal hopes
- Discount flyers hoping to overturn Federal Court ruling
- Spirit is fast running out of options
If US budget flyer Spirit Airlines (SAVE:NYSE) is going down, it’s going down fighting. Shares in the cash-strapped company jumped nearly 20% overnight after lodging an appeal against the Federal Court ruling that blocked its takeover by rival discounter airline JetBlue Airways (JBLU:NASDAQ).
Spirit has been facing a bleak future after a US federal judge blocked its proposed $3.8 billion merger with JetBlue, a deal that some analysts believe was vital if it was to survive at all.
DESPERATE TIMES
‘We believe Spirit is likely to look for another buyer… but a more likely scenario is a Chapter 11 filing, followed by a liquidation,’ said TD Cowen aviation analyst and managing director Helane Becker in direct response to the court ruling.
Spirit’s shares had plunged more than 60% to $5.70 after the merger was blocked, valuing the business at just $622 million. Clearly there are some investors willing to bet that Spirit and JetBlue can convince an appeal hearing to reverse the decision and let it fly through.
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Spirit recently raised $419 million by selling and leasing back some of its aircraft in a desperate attempt to provide enough capital to self-finance a debt restructuring and pay creditors back, albeit, over time. But a merger with JetBlue would provide a much-needed cash injection and clear the debt decks.
FLOODED CAPACITY
TD Cowan’s Becker believes this has all come about because too much airline capacity flooded the US domestic market in the second half of 2023 as Covid restrictions unwound, putting downward pressure on air fares to the detriment of low-cost carriers such as Spirit.
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Spirit lost $158 million in the third quarter of 2023 and failed to even host a conference call with investors. If the appeal fails, it will leave Spirit in dire straits. A new white knight rescue buyer could emerge but if this deal appeal falls through, what chance is there that an alternative bidder would be successful?
