Should one Risk Choosing Spirit Airlines amidst Concerns Surrounding Possible Bankruptcy?
Spirit Airlines (SAVEQ dropping by 0.36%) seemed inclined towards being absorbed by JetBlue (JBLU rising by 0.14%) after agreeing to be bought out. However, the proposed merger got scrapped, leaving Spirit in a precarious position, potentially facing extinction in an unfavorable manner. This stock is a high-stakes gamble that investors should handle with caution.
What went awry with Spirit and JetBlue?
In a Wall Street drama, Spirit Airlines plunged into the red after the coronavirus pandemic. Despite the world becoming complacent with COVID-19, the airline failed to turn its fortunes around. With impending debt maturities looming over its financial statements, Spirit began searching for a savior to alleviate its financial distress.
Rumors swirled about Spirit possibly merging with Frontier Group (ULCC up by 2.06%), but then JetBlue entered the picture and snatched Spirit's affections. The issue, however, was that JetBlue, having grown from a small startup, was now a substantial airline. Combining JetBlue and Spirit sparked concern among regulators over potential consumer harm. Ultimately, the deal was cancelled.
Spirit, in a way, has found itself back at square one, only this time in a more difficult situation. This is because it has wasted precious time. As a company with maturing debts, every second counts. The gossip is that Spirit has revived merger talks with Frontier. It's clear that Spirit is operating from a position of leverage.
Investors thrive on intriguing tales
Not surprisingly, Spirit's stock has seen significant volatility during this challenging phase, with each twist of this woeful yarn triggering significant stock price swings, both up and down. Investors are betting on the story's future developments. This is a risky pursuit that resembles gambling more than investing. With the appearance of Spirit nurturing bankruptcy, the risk of total loss for investors is significant.
The company's most recent move is a stark illustration of its predicament. It recently announced layoffs and aircraft sales to improve its liquidity. These were soon-to-be-delivered planes, making the news a worrying development despite a brief boost in the share price. Essentially, Spirit is sticking with an aging fleet of aircraft in order to generate cash, a move that will diminish its appeal to passengers. This underscores the gravity of the company's situation.
In a nutshell, these are the sorts of decisions that get made when a company is in serious financial straits. Such choices are indicative of a company on the brink of bankruptcy. Such decisions should give investors pause, not induce excitement to purchase shares.
This isn't a lifeline; it's a Hail Mary
At present, it seems that Spirit is doing everything it can to survive long enough to sell itself to another company. If these negotiations fail, there's a significant probability that Spirit will file for bankruptcy. Every potential buyer is aware of this, which complicates the process of completing a transaction. Operating from a position of weakness isn't favorable for Spirit or its shareholders. From a cynical perspective, a potential buyer could simply wait for bankruptcy and buy Spirit's assets at a discount. It's indeed plausible that Spirit could muster a Hail Mary, but the consequences of a fumble are so severe that most investors should shy away from what has become a substantial gamble.
Investors might want to reconsider their strategy when it comes to investing in Spirit Airlines, given its precarious financial situation. Amidst the ongoing negotiations with potential buyers, the company's continuous struggle to stay afloat could potentially lead to substantial losses for investors.
Moreover, the prolonged period of instability has led Spirit to make questionable decisions like layoffs and aircraft sales, which may not significantly improve its financial situation in the long run, but rather diminish its appeal to passengers. As a result, investors should carefully consider the risks involved in investing in this stock.
