Shares of low-cost carrier Spirit Airlines jumped about 12% in premarket trading today, Friday, October 25, following the company’s announcement of a planned sale of part of its fleet for approximately $519 million and forthcoming layoffs.
Details
Spirit stock gained 12% before the opening bell on Friday to $2.70 per share. The airline, in trouble financially, has agreed to sell 23 Airbus A320ceo and A321ceo aircraft to GA Telesis, a company specializing in aftermarket services and leasing, for $519 million. According to documents filed with the U.S. SEC, Spirit plans to deliver the planes between October 2024 and February 2025. The sale, combined with the discharge of the related debt from the balance sheet, is expected to boost Spirit’s liquidity by approximately $225 million by the end of next year.
Spirit also outlined plans to cut roughly $80 million in annualized costs as part of ongoing efforts to return to profitability, as noted in the SEC filing. The company, anticipating a lower flight volume, will reduce staff.
Context
Not so long ago, Florida-based Spirit was thriving. However, over the past two years, the ultra-discount model has “unraveled,” notes the Wall Street Journal. Major carriers have introduced competitively low fares, while operating costs for budget airlines have continued to rise.
Higher expenses, paired with extended groundings due to the recall of Pratt & Whitney engines used in Spirit’s Airbus A321neo EADSF planes, have strained the airline, according to The Street. In the second quarter of 2024, Spirit reported a nearly 97% increase in its net loss year over year to $192.9 million, while total debt exceeded $3.3 billion. It had hoped to improve its financial situation by merging with JetBlue Airways, but the deal was blocked by a U.S. court in early 2024.
This week brought some positive news for Spirit. On Monday, October 21, the company revealed that the U.S. Bank National Association had granted it an additional two months to reach a refinancing deal with its bondholders. Then, on Wednesday, October 23, the WSJ, citing “people familiar with the matter,” reported that Spirit and Frontier Airlines had resumed merger talks. Both pieces of news led to double-digit gains in Spirit stock. Over the last five days, the company’s market cap has expanded almost 60%, though the stock remains down more than 85% since the beginning of the year. According to MarketWatch, the target price among 12 analysts covering Spirit is $1.93 per share, with shares trading above that currently.
