Spirit Airlines shares hit record low as JetBlue deal collapse alarms investors

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By Dan Sears

Spirit Airlines is looking at options to refinance its debt and is not considering restructuring, a person familiar with the matter told Reuters on Thursday.

The company’s shares have been falling since Tuesday on investor concerns about its financial future after a US judge blocked its $3.8 billion merger with JetBlue Airways.

The sell-off in the company’s shares picked up speed Thursday afternoon after the Wall Street Journal reported that the ultra low-cost carrier was exploring restructuring options. The report did not provide any details on the discussions.

Spirit’s shares, however, pared losses after Reuters reported the company’s comments, and were down 7% in afternoon trade.

“Spirit will continue to take steps to shore up its balance sheet,” the person said, who asked not to be named as the discussions are still private. “What we’re looking at is refinancing debt.”

Ratings agency Fitch on Wednesday said Spirit’s credit profile was under pressure as it faced significant refinancing risk in the next year with its $1.1 billion loyalty program debt coming due in September 2025.

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Spirit Airlines said it has been taking and will continue to take prudent steps to ensure the strength of its balance sheet and ongoing operations. AFP via Getty Images

Earlier on Thursday, the company said it has been taking and will continue to take prudent steps to ensure the strength of its balance sheet and ongoing operations.

Since the court’s ruling on Tuesday, a number of analysts have downgraded Spirit’s stock and its shares have shed more than half of their value.

“Although JetBlue and Spirit can still appeal Tuesday’s court ruling, it is unclear why JetBlue wouldn’t cut its losses here and recognize that it avoided a risky bid on a highly levered carrier with steep losses,” Citi analyst Stephen Trent wrote in a note.

JetBlue shares were up about 7%.

Spirit Airlines CEO Ted Christie in November. REUTERS

Spirit has been among the carriers hardest hit by a snag with RTX’s Pratt & Whitney Geared Turbofan (GTF) engines. It is the largest operator of GTF-powered aircraft in the United States.

Meanwhile, excess industry capacity in its key markets is hurting its pricing power, forcing the company to indulge in promotional activity with steep discounting to fill up its planes.

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Some analysts have said that the company might contemplate a bankruptcy filing to streamline its balance sheet and reorganize into a financially robust airline.

Spirit, however, said it is “confident” in its strengths and strategy and remains committed to delivering affordable fares.

The company entered into sale-leaseback transactions this month for 25 aircraft, which provided it about $419 million in cash.

The company said it is changing its aircraft delivery schedule through the end of the decade and slowing capacity growth in the near term.

A judge on Tuesday blocked Spirit’s $3.8 billion merger with JetBlue Airways. AP

The carrier also has plans to cut $100 million in structural costs.

Spirit’s ratio of enterprise value to sales for the next 12 months is 1.3, compared with 0.6 for JetBlue, according to LSEG data. A low ratio implies a more attractive investment opportunity.

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