Spirit Shares Drop 17% Amid Possible Merger Termination with JetBlue

Summary

  • Spirit Airlines’ shares dropped 17% after a potential termination of its merger deal with JetBlue, further extending the losses of 55% this month following a U.S. judge’s blocking of the merger.
  • The airline alerted Spirit Airlines about the possible termination after this Sunday due to unfulfilled conditions.
  • Despite this, Spirit Airlines rejects any grounds for deal termination, pledging to adhere to the conditions and expecting the same from JetBlue.
  • This predicament may worsen Spirit’s financial predicament as it grapples with elevated operational costs and supply chain disruptions that cast doubt on its debt repayment capacity.
  • Earlier this month, a U.S. judge thwarted the planned low-cost airline merger over competition and price concerns, a decision the airlines plan to challenge.

Merger Termination Impact on Spirit

Stock of Spirit Airlines took a 17% dip after the announcement of probable termination of the merger deal with JetBlue, coupled with a 55% loss earlier this month due to a U.S. court’s decision to halt the agreement.

Merger Agreement Details

The carrier divulged to Spirit that the merger contract could be scrapped after Sunday due to unfulfilled prerequisites. JetBlue communicated its ongoing assessments of the options under the agreement, vowing to comply with its obligations unless the agreement was terminated.

Spirit Response

In contradiction, Spirit dismissed the rationale for the cancellation of the merger deal, promising to stick to its responsibilities and anticipating JetBlue doing the same.

Spirit’s Financial Status

Should the deal be called off, Spirit’s financial status could suffer further. The carrier’s struggle to turn a profit amidst high operating expenses and supply chain obstacles poses questions about its ability to counterbalance the debt due for maturity next year.

Spirit’s Future Plans

Earlier, Spirit disclosed plans to look at opportunities to refinance its debt due in 2025, including the $1.1 billion debt.

The Predicament of The Merger

A U.S. court earlier blocked the airlines’ proposed merger, viewing it as a probable competitive risk to the U.S. aviation industry, likely driving up ticket prices. Both airlines plan to appeal to this ruling.

Analyst Comment

If the ruling of the lower court is maintained, Citi analyst Stephen Trent suggests in a report that JetBlue shareholders could be relieved that the airline would not have to take on Spirit Airlines’ substantial debt or its cash-depleting operations.

JetBlue’s shares edged up 2% in the early trade.

If the future rulings remain against the merger, it could have significant implications on forex or trading related to JetBlue and Spirit airlines, influencing the assets positively or negatively.

PIP Penguin
Logo