Spirit Airlines shares plunge 60% after Frontier merger talks break down
Shares of low-cost carrier Spirit Airlines dropped over 60% in premarket trading today, November 13, after the news broke that the company is preparing to file for bankruptcy following failed merger talks with Frontier Airlines, as reported by the Wall Street Journal.
Details
Spirit, a budget airline facing significant financial challenges, saw its stock fall more than 60% to $1.23 per share in premarket trading today in New York. During the regular trading session yesterday, November 12, Spirit dropped 5.3%. Since the start of the year, it has plummeted over 80%.
The company is expected to file for bankruptcy within a few weeks, after its competitor, Frontier Airlines, walked away from merger talks, according to “people familiar with the matter” cited in a WSJ article published late Tuesday evening. These sources indicated that Spirit, together with its bondholders, is working on a bankruptcy plan that would garner support from a majority of creditors. The company is struggling with mounting losses and looming debt repayments. Earlier, the WSJ wrote that Spirit had more than $3.3 billion in debt, with approximately one third of that owed to bondholders.
Context
Spirit was once a successful low-cost carrier. However, the model of ultra-budget airlines has become less sustainable in the past two years as major national carriers have entered the low-cost market.
Operating costs have also been rising, exacerbated by extended groundings due to the recall of Pratt & Whitney engines used in Spirit’s Airbus A321neo EADSF planes, according to The Street. As a result, Spirit’s net loss in the 2024 second quarter was nearly 84 times that of the year-before period, reaching $192.9 million.
A merger with JetBlue Airways was expected to save Spirit, but the deal was blocked by a court in early 2024. In mid-October, the WSJ broke that Spirit had resumed merger talks with Frontier. However, now Frontier has seemingly given up, with no comment from the airline to the Journal. Spirit has signed a deal to sell part of its fleet for $519 million and furloughed pilots as part of a plan to cut roughly $80 million in annualized costs.
On Tuesday evening, Spirit itself announced it would not be able to file its third-quarter report with the U.S. SEC in a timely manner “without unreasonable effort or expense.” It stated that it is now focused on negotiating with bondholders for a debt restructuring and exploring alternative ways to improve liquidity for the company. If these negotiations are successful, the agreement would wipe out existing shareholders, the WSJ reported, citing the company.
Spirit must reach a deal with bondholders by the end of December, as per an agreement with the U.S. Bank National Association, which would stop processing credit card transactions for Spirit if the deadline is not met.
According to MarketWatch, the average target price from the 10 analysts who cover Spirit stands at $1.93 per share. At the close yesterday, November 12, Spirit was trading 67% above that.
