Hippocrates, the ancient Greek physician, is credited for first using the expression "desperate times call for desperate measures," and those words still hold true for Spirit Airlines (SAVE) .
The struggling airline announced a series of drastic steps in an Oct. 24 regulatory filing, including selling airplanes and cutting staff. The moves are designed to stabilize the airline's finances and reduce its bankruptcy risk.
Spirit's shares jumped Friday following the news, and the stock closed up 15.3% to $2.79.
Related: Talk of a Spirit/Frontier merger is starting up again
The company said it will raise $519 million by selling 23 older Airbus aircraft to aircraft-maintenance and component services platform GA Telesis. The aircraft are set to be delivered from this month through February 2025.
Spirit said it will also reduce costs by about $80 million, mostly through job cuts.
🔌Free Newsletter From TheStreet - TheStreet🔌
In August, Spirit Airlines said it would demote around 100 captains and lay off about 240 pilots.
Judge thwarts Spirit-JetBlue merger
The airline also said it would impose a temporary hiring freeze for pilots and flight attendants and offer current cabin crew voluntary unpaid leave.
Earlier this week, the Wall Street Journal reported that Spirit and Frontier Airlines (ULCC) were exploring a potential merger.
Related: This is why Spirit Airlines stock is soaring again
Frontier offered to buy Spirit once before in 2022 for $2.9 billion but was ultimately outbid by JetBlue (JBLU) with an offer of $3.8 billion.
In January, a federal judge blocked the proposed merger with JetBlue, agreeing with the U.S. Department of Justice’s argument that such a deal would create an anti-competitive environment.
“Spirit is a small airline, but there are those who love it,” U.S. District Judge William Young wrote in his ruling. “To those dedicated customers of Spirit, this one’s for you.”
The idea of the Spirit-Frontier deal had Wall Street veteran and TheStreet Pro analyst Stephen Guilfoyle quoting the lyrics from the British heavy metal band Iron Maiden's song "Run to The Hills."
"That's a hard 'no' from me," he wrote on Oct. 23. "All 12 sell-side analysts that I can find that follow SAVE have reduced their earnings estimates as the quarter progressed."
"Is Frontier better?" the veteran trader asked. "Yes, the firm is losing a lot less money, ran a slightly positive operating cash flow for the past quarter and the balance sheet is a lot less awful. How about JBLU? Not much better."
Guilfoyle said that he thinks "Frontier, while still speculative, is the better investment choice of the three."
"That said, there's nothing wrong with sitting on one's hands sometimes (so one does not touch their keyboard)," he said.
Spirit shares tumbled earlier this month following reports that the airline was speaking to bondholders about a restructuring plan that included the possibility of a Chapter 11 filing.
The company's stock soared after Spirit reached a debt refinancing agreement that allowed it to temporarily push off the bankruptcy threat.
Spirit reported in an Oct. 18 filing that creditors Visa (V) and Mastercard (MA) agreed to push back the $1.1 billion loyal bond debt Spirit has accrued with them until Dec. 23 (the airline’s total debt adds up to over $3.3 billion).
Spirit says third-quarter seat capacity down
The carrier was also able to secure an additional $300 million in revolving debt from the same creditors, granting it a total of approximately $1 billion in liquidity.
More Economic Analysis:
- Goldman Sachs analyst overhauls S&P 500 targets for 2024, 2025
- PCE Inflation report resets bets on another big Fed rate cut
- Why stocks are soaring and the rally has room to run
Spirit said third-quarter capacity was down 1.2% year over year and estimates its fourth-quarter capacity will be down roughly 20% year over year.
The airline said that it plans to provide additional details regarding its third-quarter performance when it reports results in mid-November.
For the full year 2025, Spirit said that estimates its capacity will be down mid-teens year over year.
The decrease includes the sale and removal from scheduled service of the aircraft, a year-over-year increase in the estimated number of neo-- new engine option--aircraft removed from scheduled service due to the reduced availability of Pratt & Whitney geared turbofan engines, the retirement of the remaining A319ceo aircraft and the addition of six new A321neo aircraft scheduled for delivery in 2025.
Last year, Pratt & Whitney discovered that its geared turbofan engines manufactured between the fourth-quarter of 2015 and the third-quarter of 2021 had a contaminated powdered metal that could interfere with the functioning of the engines, the aviation site Skift reported.
The issues primarily affected A320neos, causing carriers like Spirit and JetBlue — both of which rely on the A320neo — to ground several planes. Spirit is expected to ground 25 A320neos as a result.
Spirit said it expects to end 2024 with over $1 billion of liquidity, including unrestricted cash and cash equivalents, short-term investment securities, and additional liquidity initiatives.
Will that be enough to avoid the risk of bankruptcy? That remains to be seen.
Related: Veteran fund manager sees world of pain coming for stocks
