Industry analysts describe a relatively bleak future for Spirit in particular.
”We believe this is a positive for JetBlue, as business at Spirit turned negative between the time the merger was announced to now,” writes TD Cowen aviation analyst and managing director Helane Becker.
She notes that “too much capacity came into the US domestic market” in the second half of 2023, putting downward pressure on air fares to the detriment of ultra-low-cost carriers (ULCCs) such as Spirit.
Spirit lost $158 million in the third quarter of 2023 and did not host a conference call with investors.
“We believe Spirit is likely to look for another buyer… but a more likely scenario is a Chapter 11 filing, followed by a liquidation,” Becker says. “We recognise this sounds alarmist and harsh, but the reality is we believe there are limited scenarios that enable Spirit to restructure.”
Spirit’s recent decision to raise $419 million by selling and leasing back some of its aircraft could provide enough capital for Spirit to self-finance a Chapter 11 filing, Becker says. Chapter 11 bankruptcy proceedings would allow Spirit to restructure its debt and pay creditors back over an agreed upon period.
Demand for narrowbody aircraft is sky-high, “especially given ongoing issues at Boeing”, Becker notes. “Lessors would be more likely to repossess aircraft than renegotiate leases.”
JetBlue and Spirit appeared to leave open the possibility of filing an appeal to overturn the court’s 16 January ruling. ”We are reviewing the court’s decision and are evaluating our next steps as part of the legal process,” the carriers said.
Raymond James analyst Savanthi Syth believes that such an effort is unlikely, however. “If they do [appeal], it is our understanding that it could take” up to five months, she says.
The US Department of Justice, which sued to block the deal in March 2023, framed the court’s ruling as a victory for antitrust laws and budget-conscious consumers.
”Today’s ruling is a victory for tens of millions of travellers who would have faced higher fares and fewer choices had the proposed merger between JetBlue and Spirit been allowed to move forward,” says Attorney General Merrick Garland, who promised that the DOJ will “continue to enforce the nation’s antitrust laws”.
The decision could open the door for other Spirit bidders, including private equity firms, analysts say.
Frontier Airlines could make another run at acquiring Spirit after appearing close to finalising the acquisition in July 2022, only to be rebuffed in favour of JetBlue’s more lucrative offer.
“We could see renewed interest from Frontier,” Syth says. ”However, given its own challenging earnings backdrop, we believe a lower, all-stock offer is more likely.”
Meanwhile, Citi analyst Stephen Trent believes the likelihood that another carrier steps in to acquire Spirit is low.
”Do other airlines potentially express any interest in Spirit Airlines? Our sense is that the answer… is no,” he says.
Frontier, which has struggled financially in recent months – including in its core leisure markets – did not comment on the situation. Delta Air Lines and Las Vegas-based ULCC Allegiant Air also declined to comment.