Fitch analysts have joined the growing chorus of skeptics who doubt the viability of Spirit Airlines as a standalone carrier. In light of Tuesday's ruling by a federal judge to block JetBlue's proposed acquisition of Spirit, concerns about the ultra-low-cost carrier's ability to improve its profits have been amplified.

The credit-rating firm acknowledges that the companies involved may choose to appeal the ruling, but they consider this option unlikely. Fitch's evaluation of Spirit's prospects highlights significant challenges that lie ahead for the airline. These challenges include substantial refinancing risk, with a debt of $1.1 billion in its loyalty program due in September 2025. Additionally, Spirit is struggling with engine-availability issues, overcapacity in select leisure markets, and fierce competition.

While Fitch did not revise its credit rating for Spirit, it did affirm that it expected the airline to prioritize liquidity. This assertion is supported by the recent cash infusion of $419 million resulting from a sale-leaseback transaction involving 25 jets. Furthermore, potential future transactions of this nature, coupled with engine-related payments from Pratt & Whitney, a subsidiary of jet-engine maker RTX Corp., may contribute to improving Spirit's financial position.

In summary, Spirit Airlines faces an uphill battle as it navigates through these challenging times. The outcome of the appeal process remains uncertain, and the airlines continue to grapple with various obstacles that hinder profitability. It is clear that Spirit must be strategic and diligently protect its liquidity to weather these serious headwinds.

Overcoming Refinancing Risk: Spirit Faces Uphill Battle

The recent judge's ruling regarding Spirit Airlines' merger with JetBlue has sent shockwaves through the aviation industry. With market confidence shaken, industry experts are now questioning Spirit's ability to restore profitability and generate adequate cash flows.

Analysts Doubtful About Appeal

Notably, analysts from Raymond James, JP Morgan, and Melius Research are skeptical about the success of an appeal against the judge's ruling. Instead, they believe attention will shift towards Spirit's ongoing financial struggles and its chances of survival in the current market.

JetBlue Deal Fallout

Before the 2022 merger deal with JetBlue, analysts already expressed concerns about JetBlue's limited prospects for organic growth. Recent observations by TD Cowen analyst Helane Becker confirm that Spirit's performance has taken a downturn since the deal was announced.

Becker suggests that Spirit may now seek another buyer, possibly private equity. However, she considers a more probable outcome to be a Chapter 11 filing followed by liquidation.

Frontier ULCC a Contender?

Despite the setback, questions hang in the air as to whether discount airline Frontier ULCC may make a play for Spirit. However, Becker highlights that Frontier has its own share of challenges to address. Since the initial Frontier/Spirit merger plan, Frontier's shares have plummeted by over 60%.

Market Fallout

As a result of the judge's ruling, Spirit's stock experienced a sharp decline of 22.5% during Wednesday's trading. After hours, it continued to drop by another 1.8%. Starting the year at around $16 per share, Spirit's stock now sits at approximately $6 following the ruling.

The road to overcoming refinancing risk appears steep for Spirit Airlines, with the company's future now uncertain in an increasingly volatile market.

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