Spirit Airlines (NYSE:SAVE) stock ended last week near record lows after JetBlue (NASDAQ:JBLU) hinted that it may terminate its merger plans with the company. This comes after a federal court went against the merger and sided with the U.S. Department of Justice (DOJ), which had sued to block the $3.8 billion deal.
Spirit is countering that the merger should take place despite the court’s decision.
SAVE Stock and the Vetoed Spirit-JetBlue Combination
On Jan. 16, a federal court blocked the merger between Spirit Airlines and JetBlue, agreeing with the DOJ’s contention that the deal would harm consumers. In the wake of the decision, the two airlines filed a brief indicating that they would appeal the decision.
In a filing with the U.S. Securities and Exchange Commission (SEC) late last week, however, JetBlue suggested that the merger may be terminated. This is because the firms may not be able to comply with certain deadlines, per The Wall Street Journal.
An Uncertain Outlook
On Jan. 8, JetBlue disclosed that President and Chief Operating Officer Joanna Geraghty would be promoted to the position of CEO, effective Feb. 12. Geraghty will replace Robin Hayes, who is retiring from the executive role.
Given JetBlue’s recent shift in support for the deal, it is possible that the firm’s board surmised that the merger would likely be blocked and pushed Hayes to retire because it was unhappy with the time and money spent on the deal. After all, as noted earlier, JetBlue appears to now be seeking to terminate the combination. Of course, though, this is all speculative.
Whatever the reason, a number of analysts now believe Spirit could be forced to declare bankruptcy if the deal is terminated. For example, Cowen analyst Helane Becker suggests that “aircraft leasing companies, which own more than half of Spirit’s 200-plus Airbus jets, would be more likely to repossess the planes and find other customers” rather than negotiate new terms. That could force Spirit to liquidate.
On the other hand, JPMorgan believes that Spirit will probably survive but struggle going forward. Analysts expect the firm to look for a new merger partner. JPMorgan also believes that “JetBlue would be better off if the appeal fails and the deal does not go through.”
As someone who usually flies on Spirit a few times a year, my view is that the airline’s fares are so much lower than other airlines’ that Spirit does have room to meaningfully raise its prices — and will likely do so going forward. As a result, I think there’s a good chance that the airline will survive for at least a year or two. However, SAVE stock could drop further as the Street worries about Spirit’s ability to hang on.
On the date of publication, Larry Ramer did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
