Spirit’s, JetBlue Merger Denied, Now Faces Chapter 11 Bankruptcy Concerns Amid Debt Maturities

By Moon Harper

Mar 11, 2024 06:13 AM EDT

Spirit Airlines pinned its hopes on merging with JetBlue, which would have disrupted Spirit's low-cost business model operating on a full a la carte model.

Customers pay a low price for their plane ticket; anything extra, like a seat assignment, carry-on bag, checked baggage, and even water, tea, or coffee, comes with an additional cost. If the merger with JetBlue had happened, Spirit probably would have adopted its partner's model, which offers low fares, seat assignments, and carry-ons included, except for checked baggage.

With the merger blocked by federal regulators, Spirit now deals with significant debt and ongoing losses, amounting to two hundred fourteen million dollars in the fourth quarter, totaling four hundred ninety-five million dollars for the year, after a five hundred ninety-eight million dollars loss in 2022.

Spirit has remained steadfast, with CEO Ted Christie confident in the company's future, emphasizing its 100% focus on the adjustments they will continue to make to "drive us back to cash flow generation and profitability," in the company's fourth-quarter earnings release.

Spirit Debts Maturity Coming Due

The termination of Spirit's merger with JetBlue has raised doubts about the company's future. CFO Scott Haralso stated that they believe the one billion three hundred million dollars in total liquidity by the end of 2023 should be enough to achieve their primary goal of making the business generate cash. He also mentioned that although they are confident in their ability to achieve positive cash flow, they will explore other opportunities to strengthen their liquidity as they move forward in the year.

Haralso also mentioned that the company faces significant debt maturities in 2025 and 2026. According to a Quartz report, this might not reassure the company's creditors, as Spirit owes more than one billion dollars in debt, with some trading below its face value on public markets. For instance, bonds due in 2026 are trading at 74 cents on the dollar, while those expected in 2025 are trading at 76 cents on the dollar, according to the website.

Bankruptcy Risk for Spirit According to Analysts

Fitch Ratings has lowered Spirit's credit rating, highlighting the challenges the airline faces in improving its profitability. These include issues with engine availability, overcapacity in specific leisure markets, and fierce competition.

Fitch predicts that JetBlue's profit margins will stay significantly below normal levels until at least this year due to several immediate challenges, including substantial impacts from air traffic control delays, especially in the Northeast where JetBlue is heavily concentrated, and an excess of industry capacity compared to demand, especially during off-peak times.

Furthermore, Bloomberg revealed that Spirit's creditors are preparing for a potential bankruptcy filing.

Rapid Ratings, a company that monitors businesses' financial stability, has alerted Spirit's vendors about the airline's high risk of default. They have advised these vendors to start mitigating their risks. Rapid Ratings stated that Spirit Airlines Inc. is classified as high-risk, showing weaknesses in five out of seven performance categories, particularly highlighting significant underperformance in return on capital employed (ROCE). If current trends continue, Rapid Ratings suggests that Spirit Airlines Inc. could face serious default risks in the upcoming year.

Spirit's stock closed at $4.85 on March 8, a significant decrease from its 52-week high of $19.69. The shares lost about two-thirds of their value after the federal government blocked the airline's merger with JetBlue.