Holey Spirit: Blocked Merger, Falling Shares, Potential Bankruptcy Poking Holes In Spirit Airlines

In a major setback for Spirit Airlines (NYSE: SAVE), its stock plummeted by 47% following a federal judge’s decision to block the planned $3.8 billion merger with JetBlue (NASDAQ: JBLU) on antitrust grounds. This ruling has led to a sharp decline in Spirit Airlines’ market capitalization, hitting an all-time low of just $600 million.

The judge’s decision was driven by concerns over antitrust issues, adding to the existing pressures on Spirit Airlines. The airline has already faced profitability issues, contributing to the stock being halted twice. With the merger now in jeopardy, what was anticipated to be a lifeline for Spirit Airlines appears increasingly unlikely to pass regulatory scrutiny.

In response to the court ruling, Spirit Airlines and JetBlue issued a joint statement expressing their disagreement and stating their intent to review the decision. The statement read, “We disagree with the U.S. District Court’s ruling. We are reviewing the court’s decision and are evaluating our next steps as part of the legal process.”

Analysts, including TD Cowen’s Helene Becker, foresee challenging times ahead for Spirit Airlines. Becker suggests that the company may explore alternative buyers, but the likelihood of encountering antitrust regulatory challenges with another airline remains high. One potential alternative buyer, Frontier Group, could face obstacles as its shares have depreciated by 60% since its original offer for Spirit.

Becker contends that, given the current circumstances, Spirit Airlines may opt for a Chapter 11 filing to preserve capital. In a note, she stated, “In the short term, we believe the base case for SAVE is to go into Chapter 11 sooner rather than later to preserve capital. Whether we are correct or not remains to be seen, but we are not convinced an airline with limited free cash flow (none right now) and continued losses will be able to successfully restructure.”

The situation has prompted speculation among traders, with some closely monitoring the options market. Notably, on January 3rd, a trader purchased nearly 10,000 shares Feb Expiry 10 strike puts for $1.98, which have since surged to $2.75, yielding a profit of $770,000 (+39%).

Despite the setback, Spirit Airlines remains in the spotlight, with the possibility of exploring other strategic options or heading towards a Chapter 11 restructuring to navigate these challenging times for low-cost airlines.

Information for this briefing was found via Seeking Alpha and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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