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Spirit Airlines is considering options to address its financial challenges after a federal judge blocked JetBlue Airways' plan to buy the low-cost carrier, people said.
Spirit plans to discuss its path forward with short-term debt maturities with its advisers, the people said. The company has about $1.1 billion in debt due in September 2025, and there are increasing risks to its ability to refinance that debt, according to a Fitch Ratings report on Wednesday.
JetBlue commits to Justice Department lawsuit aimed at blocking airline merger
U.S. District Judge William Young of Massachusetts on Tuesday sided with the Justice Department, arguing that the merger would reduce competition and harm travelers who rely on Spirit's low fares, ruling out a $3.8 billion partnership with JetBlue. Rejected.
Spirit Airlines grounded some planes Friday for inspection and canceled about 100 flights. (Spirit Airlines/FOX News)
“While we are disappointed with this result, we remain confident in our strength and strategy,” a Spirit representative said Wednesday. We have taken prudent measures and will continue to do so.” ”
Airlines can appeal this ruling. JetBlue and Spirit said in a joint statement Tuesday that they are considering “next steps as part of the legal process.”
With the merger off the table, Spirit will have to reorganize its operations and meet upcoming debt maturities on its own. Earlier this month, the company completed a series of deals to sell and lease back more than 20 aircraft, allowing it to pay down $465 million in debt on those aircraft and raise $419 million in cash. Ta.
The airline's net losses have widened over the past three years as major airlines cut prices and eroded Spirit's market share, leading some analysts to question whether a balance sheet restructuring is necessary. There is.
“We don't predict it will happen anytime soon.” [Spirit Airlines] “The Chapter 11 filing merely acknowledges that we cannot reasonably identify a return to profitability in the foreseeable future,” JPMorgan Chase analysts wrote on Tuesday.
“The livery design is JetBlue's first complete paint design refresh,” JetBlue said, adding, “Customers can look forward to finding an even newer livery design with an updated tail pattern later this year.” ”. (Jet Blue)
Justice Department files suit to block $3.8 billion JetBlue-Spirit Airlines merger
The decision to block the merger with JetBlue is a nail in Spirit's coffin, as the government aimed to keep Spirit Airlines an independent discount company capable of offering cheap flights to the most value-conscious travelers. Some analysts said it may have happened.
Melius Research analyst Conor Cunningham wrote on Tuesday: “We expect Spirit to continue to experience cash burn over the next few years, and the company will need to continue raising capital to survive.” In such cases, liquidation may be more likely than a Chapter 11 filing, he added. The mind becomes bankrupt.
A Chapter 7 liquidation “would result in a permanent reduction in supply as lenders seek to reallocate aircraft outside the United States,” Cunningham wrote. “That seems to be the opposite outcome of what Judge Young was hoping for.”
Spirit's stock and bonds plummeted on the JetBlue news, with the company's stock price most recently dropping more than 60% from last week to $5.41. The company's $1.1 billion, 8% secured notes due in 2025 traded for about 52 cents on Thursday, down from 73 cents last week, traders said.
Low-cost carriers like Spirit face challenges. Competition for vacation travelers is intensifying as major airlines ramp up their domestic leisure services. With an oversupply of seats in the domestic market, low-cost airlines have lowered fares to fill seats.
JetBlue, Spirit argue like Justice Department circles that merger will not lead to higher airfares
Spirit's labor costs are also rising after Spirit Airlines and its pilots agreed to a new contract last year that increases pilots' pay by an average of 34% over two-year terms. Spirit lost nearly $158 million in the third quarter, which includes much of the summer travel season, citing weak demand and discounted fares.
DENVER, CO – FEBRUARY 22: A Spirit Airlines plane taxis to the runway during a winter storm at Denver International Airport in Denver, Colorado on February 22, 2023.More than 1,000 flights were canceled across the U.S. due to the storm. ((Photo by: Michael Ciaglo/Getty Images) / Getty Images)
The company said in October that it would evaluate its growth profile and the strategic changes needed to remain competitive.
Spirit is also a Pratt & Whitney manufacturer, after Pratt & Whitney's parent company, RTX, announced in the summer that some engine parts needed early testing for suspected metal contamination. The airline was one of the hardest hit by the recall of hundreds of geared turbofan engines.
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These inspections will likely ground the majority of Spirit Airlines' aircraft this year. Airlines have said the average number of planes on the ground will increase from 13 this month to 41 in December, which they say will lead to a significant decrease in the short term. Growth prospects. Spirit has offered corporate employees a buyout and canceled new employee training for pilots and flight attendants.
