By Bill Peters

Ultra-discount carrier faces ‘serious headwinds toward improving its profitability,’ the credit-rating firm’s analysts say

With more observers bracing for a future where JetBlue Airways Corp. and Spirit Airlines Inc. have to go it alone, Fitch analysts on Wednesday became the latest to cast doubt on Spirit’s prospects as a standalone airline, saying the ultra-low-cost carrier faced “serious headwinds” to improving its profits.

The credit-rating firm made that assessment after a federal judge on Tuesday blocked JetBlue’s (JBLU) $3.8 billion bid for Spirit (SAVE), arguing the proposed tie-up would stifle competition in a nation where the airline industry is already dominated by four major carriers.

Fitch analysts said the companies could appeal the ruling, but added such a move seems unlikely.

“Spirit faces significant refinancing risk in the next year, with its $1.1 billion loyalty-program debt coming due in September 2025,” they wrote on Wednesday. “Meanwhile, the company faces serious headwinds toward improving its profitability, including engine-availability issues, overcapacity in certain leisure markets, and intense competition.”

Fitch, which did not change its credit rating on Spirit, said it expected the carrier to guard its liquidity – noting that Spirit received some $419 million in cash from a sale-leaseback transaction involving 25 jets. The analysts said more of those transactions could also help the company’s finances, along with engine-related payments from jet-engine maker and RTX Corp. (RTX) subsidiary Pratt & Whitney.

“Overcoming standalone refinancing risk will ultimately be dependent on restoring market confidence in the company’s ability to establish an operational/strategic plan that enhances profitability and generates adequate cash flows,” they wrote.

Raymond James analyst Savanthi Syth also said an appeal of the judge’s ruling was unlikely. Other analysts, at JPMorgan and Melius Research, have said Wall Street’s focus will now turn toward Spirit’s financial struggles and its odds of survival.

Prior to the merger deal struck in 2022, some analysts had noted that JetBlue’s prospects for organic growth were thin. TD Cowen analyst Helane Becker, in a note on Tuesday, observed that business at Spirit “turned negative” between the time that the deal was announced and now.

“We believe Spirit is likely to look for another buyer (maybe private equity?) but a more likely scenario is a Chapter 11 filing, followed by a liquidation,” she said.

Becker said questions lingered around whether discount airline Frontier (ULCC), which JetBlue beat out in the bidding battle for Spirit, might try to swoop in with another offer. But she noted Frontier’s stock has its own issues.

“That is of course a possibility, but recall Frontier intended to use its shares to pay for the initial Frontier/Spirit merger,” she said. “Frontier’s shares have lost over 60% of their value since then.”

Spirit’s stock finished Wednesday’s trading 22.5% lower, and was down another 1.8% after hours. The stock started the year trading at around $16; in the wake of the judge’s ruling on Tuesday, its value now stands at around $6.

-Bill Peters

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01-17-24 2029ET

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