The last year has been a period of uncertainty and bad news for Spirit Airlines (SAVE) .
The low-cost carrier spent the first half of 2024 reassuring investors that bankruptcy was not in the cards after a federal judge blocked Spirit Airlines from being acquired by JetBlue (JBLU) . But by early October there were multiple reports that a Chapter 11 filing was one of the options being discussed with bondholders.
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Related: Spirit stock tumbles amid bankruptcy talks
TheStreet
This is the latest on a Spirit bankruptcy that is looking more likely
While Spirit was able to refinance debt to push back the deadlines on the most looming $1.1 billion until the end of December, the problem of being unable to either secure an investor or drastically start bringing in more funds remains. There were some reports of a potential merger with fellow low-cost carrier Frontier Airways (FRON) that ultimately broke down sometime in the last week.
On Nov. 13, the Wall Street Journal reported Spirit was in advanced talks to file for bankruptcy protection after the Hail Mary with Frontier fell through.
“The airline said its operating profit margin in the third quarter was 12 percentage points lower than the same period a year ago, reflecting higher expenses and diminished revenue,” wrote WSJ reporters Alison Sider and Alexander Gladstone. “It said revenue would be about $61 million lower, due in part, to the airline no longer charging change and cancelation fees (Spirit scrapped those last July due to pressure to keep up with other low-cost competitors doing the same).”
Related: I just flew business class on Spirit — here is what it was like
Spirit shares see largest drop in airline’s history
Upon news of the bankruptcy, Spirit stock tumbled by nearly 60% to $1.38 by Wednesday afternoon. While there were double-digit drops upon the bankruptcy rumors published over the last few weeks, this marks the biggest drop in share value in the airline’s history.
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Since the start of 2024, Spirit stock has fallen by more than 91%. While Spirit has not commented on bankruptcy speculation, it has issued a separate statement saying it remains in "constructive discussions" on a restructuring deal with its senior bondholders.
The airline said any agreement would be “expected to lead to the cancellation of the company's existing equity.”
Analysts from TD Cowen — who were among the first to say that a bankruptcy was inevitable even when Spirit was reassuring stockholders otherwise — sent out a client note saying that the most likely scenario is that Spirit “significantly shrinks in a restructuring."
Between the pandemic-related travel slump and increased competition from other low-cost airlines coming out of it, Spirit has accumulated over $3.8 billion in debt overall. Efforts to bring in more money, such as restructuring its base fare model to one with different fare classes, have yet to deliver noticeable results. At the same time, the Frontier deal would have faced antitrust concerns similar to those of the JetBlue acquisition.
"We recognize this sounds alarmist and harsh but the reality is we believe there are limited scenarios that enable Spirit to restructure,” TD Cowen analyst Helene Becker wrote in January 2024.
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