Spirit Airlines (NYSE: SAVE) has been given more time to clear its debt burden, reducing fears of near-term defaults. The stock rose on the news, rising as much as 73% on Monday morning and 58% as of 1:00 PM ET.
A big December deadline
Spirit has faced significant headwinds this year. The planned sale of the airline was announced in January JetBlue Airways was blocked due to competition concerns. And Spirit’s attempts to fly solo were hampered by one RTX engine problem that has grounded part of the fleet.
The airline faced an Oct. 21 deadline to refinance or rollover bonds or ran into problems with its credit card processing agreement. If the ticket deal is abandoned, Spirit would struggle to sell tickets, likely forcing a bankruptcy filing.
Late Friday, Spirit announced it had secured an extension until December 23. Airlines investors hope the extra time, combined with lower fuel prices and a cash injection from its revolving credit line, will allow Spirit to avoid bankruptcy.
Is Spirit stock a buy?
Even with Monday’s rise, Spirit shares are still more than 95% below their highs of the year. The good news is that this means the stock likely has significantly more upside if a deal happens. The bad news is that the market is right to judge that the airline has not escaped the turbulence it is facing.
Spirit’s banking partners have every reason to want the status quo to continue, but the airline is facing tough economic headwinds and an uncertain economy. For investors who can handle volatility, a speculative position in Spirit as part of a well-diversified portfolio can pay off big time.
Just make sure you understand the risk of this becoming zero and always keep your seat belt fastened during this journey.
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Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool recommends RTX. The Motley Fool has a disclosure policy.
Why Spirit Airlines’ stock price is rising today was originally published by The Motley Fool
