Spirit Airlines faces an uncertain future as merger fails

Spirit Airlines hasn’t made money since before the pandemic, ticket sales haven’t bounced back as quickly as the carrier expected, and dozens of its planes will be grounded at times this year because of a problem with the engines.

A sale to JetBlue represented a lifeline for Spirit, which faces $1.1 billion in debt maturing next year.

But a federal judge in Boston scuttled that plan by ruling Tuesday that JetBlue’s $3.8 billion proposal to buy Spirit violates antitrust law.

Now, some Wall Streeters who follow Spirit are tossing around the B word – bankruptcy. The judge had even hinted at such an outcome during the trial.

After Judge William Young’s ruling on Tuesday, Spirit can look for another buyer, or it could remain independent and try to push through a difficult environment for budget airlines.

But “a more likely scenario is a Chapter 11 filing, followed by a liquidation,” wrote Helane Becker, a veteran airline analyst for financial-services firm Cowen. “We recognize this sounds alarmist and harsh, but the reality is we believe there are limited scenarios that enable Spirit to restructure.”

JPMorgan analyst Jamie Baker wasn’t willing to go quite that far, but he too drew a grim picture for Spirit, which has the ticker symbol “SAVE.”

“We are not (yet) predicting an immediate SAVE chapter 11 filing, just an acknowledgment that we cannot reasonably identify a viable return to profitability any time soon,” Baker and colleagues wrote in a note to clients.

Baker noted that Spirit recently raised $419 million by mortgaging many of its planes. But, he added, “from here its liquidity-raising cupboard does not appear robust.”

Spirit did not respond directly to those comments. A spokesperson for the airline pointed to a regulatory filing two weeks ago, in which the airline disclosed that it had raised $419 million through sale-and-leaseback agreements covering 25 planes.

In a joint statement Tuesday, Spirit and JetBlue said they disagreed with the ruling that blocks their merger and were considering their next legal step.

Judge Young stopped short of granting the government’s wish for a permanent injunction against any merger between JetBlue and Spirit. During the trial, Young was troubled that such a sweeping order would be too restrictive in the ever-changing airline business.

“We are not going to get anywhere if you win, the merger isn’t approved, and Spirit goes belly-up,” the judge said to a Justice Department lawyer during closing arguments in December.

Spirit, based in Miramar, Fla., last turned a full-year profit in 2019. It has lost more than $1.6 billion since then.