Miami, Florida – Shares of Spirit Airlines, an ultra-low-cost carrier, dropped 10% in premarket trade on Wednesday following a U.S. judge’s decision to block the airline’s $3.8 billion merger with rival JetBlue Airways. The judge agreed with the U.S. Department of Justice’s argument that the merger would harm ticket buyers, causing Spirit’s stock to lose nearly half of its market value. Meanwhile, JetBlue shares also fell by 1.3% before the bell, in line with other airline stocks.
This ruling is seen as a favorable outcome for JetBlue, as Spirit’s business performance has declined since the merger was announced. Analysts believe that the best-case scenario for Spirit now would be a Chapter 11 bankruptcy filing followed by liquidation. The airline has been grappling with profitability issues due to increased operating expenses and ongoing supply chain problems, further raising concerns about its ability to repay outstanding debt.
Both Spirit and JetBlue now face critical strategic and financial decisions. Citigroup analyst Stephen Trent maintained “neutral” ratings on both stocks, indicating that the airlines need to carefully evaluate their next steps. A merger with JetBlue would have positioned Spirit as the fifth-largest carrier in the U.S. and provided a much-needed boost to its operations. Nevertheless, without a merger, analysts argue that Spirit lacks sufficient valuation support.
According to LSEG data, Spirit’s ratio of enterprise value to sales for the next 12 months is 1.3, while JetBlue’s ratio is 0.6. A lower ratio implies a more attractive investment opportunity. However, both airlines have the option to appeal the judge’s ruling and are currently evaluating their next steps within the legal process.
In conclusion, Spirit Airlines’ planned merger with JetBlue Airways has been halted by a U.S. judge, resulting in significant losses for Spirit’s stock. The airline now faces challenges in achieving profitability and paying off its outstanding debt. JetBlue, on the other hand, must reconsider its growth strategy without the anticipated merger. Both companies will need to make critical decisions to navigate the post-ruling landscape.