Spirit Airlines Inc. (NYSE:SAVE) is a nightmare that investors can’t seem to wake up from.
The shares of this ultra-low cost airline fell another 40% on news that the company is contemplating bankruptcy.
SAVE initially tried to restructure their balance sheet, but recent discussions are more related to a Chapter 11 file. This is according to sources that spoke to The Wall Street Journal on the condition of anonymity today.
Spirit Airlines’ stock value was over $16 when the year began, compared to only $1.40 at this time.
JetBlue is essential for Spirit Airlines to exist
Spirit Airlines began this year in the hope that it would merge with JetBlue Airways Corporation NASDAQ: JBLU to become fifth largest US airline.
The dream was quickly dashed after the federal government ruled that a merger of this kind would harm competition and cost-conscious travelers.
JetBlue’s failure to reach an agreement with SAVE was the result of weak sales, a series of losses and SAVE being left to manage $3.3 billion worth in debt.
According to the WSJ, this merger was not about JBLU’s expansion but rather a life or death matter for Spirit Airlines.
The Florida airline has yet to confirm whether it is considering Chapter 11 bankruptcy.
Before today’s news, no Wall Street analyst had given Spirit Airlines Inc. a rating of “buy”.
Is JBLU attractive because SAVE is a bankruptcy?
Spirit Airlines’ secured bonds of $1.1 billion are due to mature in less than one year.
This WSJ article is especially significant because Ted Christie, the Spirit Airlines chief executive in June, had dispelled fears about bankruptcy by saying he was extremely confident in “Plan B”, the company’s alternative plan after JetBlue failed to close the deal.
SAVE has failed to make a profit in the last few months and warned that it would suffer a greater loss during Q3 because of “intense competition”. It also grounded several Airbus aircraft due to a problem with Pratt & Whitney engine.
The shares of JetBlue Airways, Frontier Airlines and other low-cost carriers are all in green as of writing. This could be due to the SAVE bane, which may lead to increased business for these budget airlines.
It’s important to note that JBLU as well as ULLC were only rated “hold” at the time of writing. They are both currently trading at a higher price than the Wall Street average.
What caused the Spirit Airlines stock to fall another 40%? This post may change as new information becomes available
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