Spirit Airlines is examining options to address its financial challenges after a federal judge blocked the low-cost carrier’s deal to be acquired by JetBlue Airways, according to people familiar with the matter.
Spirit plans to discuss with advisers a path forward as it faces near-term debt maturities, the people said. The company has roughly $1.1 billion in debt due in September 2025 and the risks surrounding its ability to refinance that debt are increasing, according to a Fitch Ratings report on Wednesday.
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U.S. District Judge William Young in Massachusetts on Tuesday rejected the $3.8 billion JetBlue deal, siding with the Justice Department in saying that the merger would have reduced competition and harmed travelers who rely on Spirit’s low fares.
A representative for Spirit on Wednesday said "while we are disappointed with this outcome, we are confident in our strengths and strategy. Spirit has been taking, and will continue to take, prudent steps to ensure the strength of its balance sheet and ongoing operations."
The airlines can appeal the ruling. JetBlue and Spirit said they were evaluating "next steps as part of the legal process" in a joint statement Tuesday.
With the merger off the table now, Spirit is left to turn its operations around and address its coming debt maturity on its own. Earlier this month, it completed a series of transactions selling more than two dozen planes and leasing them back, allowing it to pay down $465 million in debt on those planes and raising $419 million in cash.
The airline’s net losses have widened for the last three years as larger carriers dropped prices and ate into Spirit’s market share, leading some analysts to question whether it will need to restructure its balance sheet.
"We are not (yet) predicting an immediate [Spirit Airlines] chapter 11 filing, just an acknowledgment that we can not reasonably identify a viable return to profitability any time soon," analysts at JPMorgan Chase wrote Tuesday.
DOJ SUES TO BLOCK $3.8B JETBLUE-SPIRIT AIRLINES MERGER
The government set out to preserve Spirit Airlines as a stand-alone discounter that can offer cheap tickets for the most price-conscious travelers, but the decision to block the merger with JetBlue may have been a nail in Spirit’s coffin, some analysts said.
"We see ongoing cash burn over the next several years at Spirit, and a company that needs to continue to raise capital to survive," Melius Research analyst Conor Cunningham wrote Tuesday, adding that a liquidation might be more likely than a Chapter 11 filing if Spirit does go bankrupt.
Chapter 7 liquidation "would result in the permanent reduction of supply as lessors would look to reallocate aircraft out of the U.S.," Cunningham wrote. "That seems like the opposite outcome Judge Young wanted."
Spirit’s stock and bonds plummeted following the JetBlue news, with its shares recently at $5.41, down more than 60% from last week. The company’s $1.1 billion 8% secured bond due 2025 changed hands Thursday at roughly 52 cents, down from 73 cents last week, according to a trader.
Budget carriers like Spirit have faced challenges. Competition has grown stiffer for vacation travelers as larger airlines have boosted offerings on domestic leisure routes. With an oversupply of seats in the domestic market, budget airlines cut fares to fill them.
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Also, Spirit’s labor costs are rising as the airline and its pilots last year agreed on a new contract that will boost pilots’ pay by an average of 34% over its two-year term. Spirit lost nearly $158 million in the third quarter—a period that includes much of the peak summer travel season—with the company citing softer demand and discounted fares.
The airline said in October that it would evaluate its growth profile and any needed strategic shifts to remain competitive.
Spirit is also among airlines hardest hit by the recall of hundreds of Pratt & Whitney-geared turbofan engines after Pratt parent RTX said over the summer that it suspected contaminated metal in some engine parts would require accelerated inspections.
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Conducting those checks will keep a chunk of Spirit’s fleet grounded this year: The airline has said the average number of planes on the ground will climb from 13 this month to 41 in December, something it said would drive a dramatic decrease in its near-term growth prospects. Spirit has offered buyouts to corporate employees and suspended new-hire training for pilots and flight attendants.
