Spirit Airlines (NYSE: SAVE) It seemed that it was destined to be merged after it agreed to be acquired JetBlue (NASDAQ: JBLU). Now that the deal has been called off, Spirit Airlines is struggling to stay afloat, and it could still happen that the deal goes away – and maybe not in a positive way. This is a high-risk story stock that investors should approach very carefully.
In a bit of a Wall Street drama, Spirit Airlines got into red ink after the coronavirus pandemic. It had no success in changing that trend, even after the world got used to life with COVID. With maturing debt weighing on its balance sheet, the airline started looking for a suitor to effectively solve its financial problems.
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Spirit was rumored to be in talks Border group (NASDAQ: ULCC)but then JetBlue got involved and won Spirit’s hand. The problem is that JetBlue, while once a small startup, is a pretty big airline at this point. Adding Spirit to the mix raised concerns among regulators that the merger would hurt consumers. The deal was ultimately called off.
Spirit is essentially back where it started, but in a worse position. That’s because time has been lost, and when a company has debt that’s coming due, time is of the essence. Rumor has it that it has revived merger talks with Frontier. It’s pretty clear at this point that Spirit is operating from a position of weakness.
As you might guess, Spirit’s share price has been quite volatile during this difficult period, with each twist in this sad story leading to big share price moves up and down, percentage-wise. Investors are betting on what happens next with each story update. This is a risky venture that is more like gambling than investing. Most investors probably shouldn’t get involved. The reason is quite simple: it seems that Spirit is flirting with bankruptcy. And that means there is a very real potential for a total loss for investors.
The latest move the company has made is further evidence of the problem. The company recently announced it will be cutting staff and selling aircraft to help improve liquidity. These are new planes that would be delivered to the company soon, which is a worrying development even as investors boosted the shares on the news. In fact, Spirit continues to hold on to an aging aircraft fleet so it can raise money, a move that will ultimately make Spirit a less attractive airline for consumers to fly. That says something about the problems the company is facing today.
