On Friday, Spirit Airlines (SAVE 17.19%) told investors that it’s still working to complete its deal with JetBlue Airways (JBLU -1.19%) and outlined its options should the deal not proceed. Investors were encouraged by the update, sending shares of Spirit up 24% as of 11:30 ET Friday.
Spirit makes its case to investors
Spirit has been flying through turbulence of late. In 2022, it agreed to be acquired by JetBlue, but antitrust regulators went to court to try to get the deal blocked. Earlier this week, a judge sided with the Justice Department and granted an injunction against the merger, putting the deal, and Spirit’s future, in doubt.
Spirit has about $1.1 billion in debt coming due by 2025, and few good options to refinance it. The company is also dealing with an engine shortage related to issues at manufacturer RTX, and faces the potential for weakening demand for travel due to economic uncertainty and higher interest rates.
The stock has been plunging in the days since the court ruling, but on Friday, Spirit did its best to reassure the market. In an investor update, the company said its merger agreement with JetBlue “remains in full force and effect,” seemingly confirming published media reports that Spirit is urging JetBlue to appeal the judge’s decision.
Spirit also said it is in negotiations with RTX concerning compensation for the engine troubles, and said that while no agreement has yet been reached, it believes the compensation it will receive “will be a significant source of liquidity over the next couple of years.” Spirit is also looking at other options to raise funds.
Down big so far in 2024, is Spirit Airlines stock a buy?
Spirit’s update was reassuring, and made it clear that bankruptcy is not a foregone conclusion. However, the stock remains a speculative investment at best, and investors need to be aware that a lot can still go wrong for the airline from here.
The RTX compensation will help, but that’s largely there to offset lost revenue from canceled flights and is likely to be at least partially soaked up by operational expenses. Given the way Spirit shares have fallen since the deal was announced, JetBlue has little motivation to keep the transaction alive. And even if JetBlue does decide to fight on, a successful appeal would be a long shot.
Spirit’s fate from here will likely be tied to the overall health of the airline industry in the quarters to come. If demand remains solid or continues to grow, the industry will enjoy some pricing power and Spirit should have an easier time paying its bills. But if travel volumes slip, Spirit will struggle to remain airborne.
Given the risk and uncertainty, investors should be cautious with this stock right now.
