Spirit Airlines (SAVE) has been making headlines lately, with its stock experiencing significant volatility. The budget airline’s shares surged last week after the company announced a major transaction and provided an update on its financial performance. However, despite the positive news, concerns remain about Spirit’s financial health and potential bankruptcy. Let’s delve into the key developments and what they mean for investors.
Aircraft Sale Fuels Optimism
In a recent SEC filing, Spirit revealed that it had signed a binding agreement with GA Telesis to sell 23 A320ceo/A321ceo aircraft for approximately $519 million. The delivery of these aircraft is slated to begin in October 2024 and continue through February 2025, subject to the execution of definitive documentation and customary conditions. This transaction is expected to inject much-needed liquidity into Spirit’s coffers. The company estimates that the net proceeds from the sale, along with the associated debt discharge, will improve its financial position by around $225 million by the end of 2025.
This infusion of capital comes at a crucial time for Spirit, as it grapples with a challenging financial landscape marked by rising operational costs and a substantial debt load of $3.3 billion. The aircraft sale offers a glimmer of hope for the airline’s financial stability.
Positive Third-Quarter Outlook, But Cautious 2025 Projections
Adding to investor optimism, Spirit recently provided preliminary estimates for its third quarter of 2024, revealing that the estimated adjusted operating margin will be about 300 basis points higher than previously anticipated. This improvement is attributed to stronger-than-expected revenue growth fueled by the company’s ongoing transformation initiatives.
However, Spirit’s outlook for 2025 is more cautious, with capacity projected to decrease in the mid-teens percentage range. This reduction stems from several factors, including the recent aircraft sale, the ongoing removal of neo aircraft from service due to Pratt & Whitney engine availability issues, and the retirement of its remaining A319ceo aircraft. On a positive note, the company plans to introduce six new A321neo aircraft into its fleet.
Cost Cuts and Debt Management
To bolster its path to profitability, Spirit has identified approximately $80 million in annualized cost reductions, expected to take effect in early 2025. These reductions primarily involve workforce cuts aligned with anticipated flight volumes. The company is also actively engaged in discussions with holders of its senior secured notes due 2025 and convertible senior notes due 2026, demonstrating a proactive approach to managing its debt obligations.
Navigating Volatility and Potential Bankruptcy
Spirit’s stock has been highly volatile in 2024, primarily due to operational disruptions from an engine recall and regulatory setbacks surrounding its proposed acquisition of JetBlue Airways Corporation (JBLU). Additionally, Spirit has missed analysts’ expectations on both revenue and earnings in its last two quarterly reports.
Recent reports suggest that Spirit Airlines is exploring potential bankruptcy options, highlighting the significant financial pressures the company is facing. However, the airline insists that it remains committed to strengthening its liquidity and addressing its debt load, aiming for over $1 billion in liquidity by the end of 2024. This figure includes unrestricted cash, cash equivalents, and short-term investment securities, contingent on the successful implementation of ongoing initiatives.
Investing in Spirit Airlines (SAVE)
For investors interested in acquiring SAVE stock, there are several avenues: purchasing shares directly through a brokerage platform, investing in exchange-traded funds (ETFs) that hold SAVE shares, or allocating to a strategy in a 401(k) that seeks to acquire shares in a mutual fund or other instrument related to the Industrials sector. According to data from Benzinga Pro, SAVE has a 52-week high of $17.02 and a 52-week low of $1.40.
Conclusion
Spirit Airlines faces a complex financial landscape, marked by both positive developments and significant challenges. The aircraft sale offers a potential lifeline, but the company’s debt load and potential bankruptcy remain major concerns. Investors should carefully weigh the risks and rewards before making any investment decisions in SAVE stock.
