Spirit Airlines (NYSE: SAVE) once appeared to be on the path to a merger with JetBlue (NASDAQ: JBLU). However, after the deal fell through, the airline now faces dire financial challenges, raising concerns that it may not survive as a standalone company. Investors need to approach this situation with caution.
The Breakdown of Spirit and JetBlue’s Merger
Following the coronavirus pandemic, Spirit Airlines struggled financially. Despite a gradual return to normalcy, the airline was unable to recover from its losses. With looming debt obligations, Spirit sought a merger to alleviate its financial strain.
Image source: Getty Images.
Initially in talks with Frontier Group (NASDAQ: ULCC), Spirit ultimately merged with JetBlue. However, regulators raised concerns that this merger might harm competition and consumers, leading to its cancellation.
Today, Spirit finds itself in a more precarious situation than before, having lost valuable time to address its mounting debts. Speculations suggest it may re-enter discussions with Frontier. The company’s current stance reflects an urgent need for solutions amid growing instability.
The Market’s Reaction to Spirit’s Turbulence
Spirit’s stock has shown volatility during these turbulent times, reacting sharply to every development and speculation related to its future. Investors are engaging in a precarious game of speculation where outcomes remain uncertain, resembling more of a gamble than a calculated investment. With bankruptcy looming, investing now carries substantial risks.
SAVE data by YCharts
Recent decisions highlight the depth of Spirit’s challenges. The airline is reducing staff and selling newly acquired aircraft to bolster liquidity. Despite a brief uptick in stock price after the announcement, this strategy leaves Spirit relying on an outdated fleet, potentially driving away customers. Such desperate measures underscore the company’s critical condition.
Decisions made amid financial distress can have serious ramifications. They are often indicative of a company battling to avoid bankruptcy and should serve as a warning to potential investors rather than encourage buy-in.
Is Spirit’s Future a Hail Mary Attempt?
Currently, Spirit’s efforts seem focused on survival with the hope of transferring ownership to another airline. Should merger negotiations fail, bankruptcy becomes increasingly likely, complicating potential acquisition deals. Buyers might opt to wait for bankruptcy to obtain Spirit’s assets at a reduced price, further complicating the airline’s future. While a miraculous recovery is not impossible, the high stakes involved suggest that investors should sidestep this risky endeavor.
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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
