Spirit Airlines Stock Nosedives After Merger Discussions Collapse

Judges gavel beside Chapter 11 bankruptcy documents.

Spirit Airlines prepares for bankruptcy as merger talks with Frontier Airlines collapse, sending stock plummeting 35% in after-hours trading.

At a Glance

Spirit Airlines is in advanced talks to file for Chapter 11 bankruptcy due to mounting losses and debt
Merger discussions with Frontier Airlines have been unsuccessful
Spirit’s stock dropped 39% to $1.8 after the bankruptcy announcement, with an overall decline of nearly 80% this year
The airline plans to furlough about 330 pilots on January 31 to cut costs
Spirit sold older Airbus aircraft for $519 million, gaining $225 million in liquidity through 2025

Spirit Airlines Faces Financial Turbulence

Spirit Airlines, the budget carrier known for its low-cost fares, is facing severe financial turbulence as it prepares to file for Chapter 11 bankruptcy. The airline’s financial woes have been exacerbated by the collapse of merger talks with Frontier Airlines, leading to a dramatic 35% plunge in its stock price during after-hours trading. This significant drop signals a critical loss of investor confidence and raises questions about the airline’s economic future.

The company is currently in advanced discussions with bondholders to develop a bankruptcy plan that would be supported by a majority of its creditors. This move comes as Spirit grapples with mounting losses and substantial debt, despite strong travel demand in the industry. The airline has not reported a profit in five of the last six quarters, highlighting the severity of its financial challenges.

As Spirit's discussions with bondholders for a potential bankruptcy filing continue, former merger partner Frontier Airlines is back in the mix. https://t.co/nO28gnPc8a via @WSJ

— Aly Sider (@alyrose) October 23, 2024

Failed Merger Attempts and Cost-Cutting Measures

Spirit’s recent attempt to merge with Frontier Airlines was seen as a potential lifeline for the struggling carrier. However, the failure of these talks has left Spirit with limited options. This latest setback follows previous unsuccessful merger attempts with both Frontier and JetBlue, further complicating the airline’s restructuring efforts.

In response to its financial difficulties, Spirit has implemented several cost-cutting measures. The airline plans to furlough approximately 330 pilots on January 31, a move aimed at reducing expenses and improving its financial position. Additionally, Spirit has sold older Airbus aircraft to GA Telesis for $519 million, providing the company with $225 million in much-needed liquidity through 2025.

Delayed Earnings and Debt Refinancing

As negotiations with bondholders continue, Spirit has delayed filing its third-quarter earnings. This delay adds to the uncertainty surrounding the company’s financial status. The airline has also received an extension to refinance over $1.1 billion in debt, with a new deadline set for December. These developments underscore the complexity of Spirit’s financial situation and the challenges it faces in regaining stability.

Spirit’s financial outlook remains bleak, with the company expecting a 12% decrease in its third-quarter operating margin and a $61 million decrease in total operating revenues compared to the previous year. To address these challenges, the airline has reduced its capacity outlook for 2025 and delayed Airbus deliveries, further highlighting the severity of its financial difficulties.

Market Reaction and Future Prospects

The market’s reaction to Spirit’s potential bankruptcy filing has been swift and severe. The company’s shares dropped 39% to $1.8 after the bankruptcy announcement, contributing to an overall decline of nearly 80% this year. This sharp downturn reflects the loss of investor confidence and the uncertainty surrounding Spirit’s future.

As Spirit Airlines navigates through these turbulent times, the outcome of its bankruptcy filing and restructuring efforts will be closely watched by industry observers and investors alike. The airline’s ability to emerge from this crisis and regain financial stability will depend on the success of its negotiations with creditors and its capacity to implement effective cost-saving measures while maintaining its competitive edge in the budget airline market.