Spirit Airlines Is on Shaky Footing After Judge Blocks JetBlue Deal

Spirit Airlines, once a fast-growing low-cost carrier, is struggling to convince investors that it has a clear path forward after an antitrust ruling blocked the sale of the company to JetBlue Airways.

A federal judge in Boston blocked the proposed merger on Tuesday, concurring with the Justice Department that the deal would hurt consumers by reducing their choices and raising fares. The airlines announced late Friday that they had jointly filed a notice of appeal.

Before it struck a deal with JetBlue in July 2022, Spirit was struggling. Unlike larger airlines, it never fully recovered from the early days of the pandemic in 2020. The budget airline is losing money, and some analysts say it is hard to see how Spirit can dig itself out of its financial hole without finding another buyer. Some airline experts say the carrier might have to file for bankruptcy protection.

“It’s a challenging financial picture for the company,” said Xavier Smith, director of energy and industrials research at AlphaSense.

In the days since the ruling, Spirit’s stock has lost more than half its value. In a regulatory filing Friday morning, Spirit said it would seek to refinance a large chunk of its debt that comes due in September 2025. It said the merger agreement with JetBlue “remains in full force and effect.” The company’s shares climbed 17 percent in Friday’s session after that announcement and rallied more in extended trading after the appeal was announced.

On Thursday, the shares plunged sharply after The Wall Street Journal reported that Spirit was exploring restructuring options. Asked about that report, the company said it was “not pursuing nor involved in a statutory restructuring.”

Spirit, like other airlines, took out loads of debt during the pandemic, but it has not had the financial rebound that bigger carriers have seen. It now owes about $6.6 billion, up from $3.6 billion in 2019.

This month, the company sold and leased back 25 jets, which allowed it to reduce its debt by $465 million.

“Spirit has been taking, and will continue to take, prudent steps to ensure the strength of its balance sheet and ongoing operations,” the company said in a statement on Thursday.

Unlike larger carriers like Delta Air Lines and United Airlines, Spirit flies mostly within the United States; its few international routes are relatively short. As a result, it has not managed the strong profits that many bigger airlines have been making on flights to Europe or Asia, and it is more exposed to fierce price wars on U.S. routes.

In addition, Spirit’s expenses have increased more than 60 percent since 2019 because of higher wages for pilots and flight attendants and pricier jet fuel.

The airline is also struggling because of problems with Pratt & Whitney engines on some of its planes. Spirit grounded 26 of its nearly 200 jets after the supplier disclosed manufacturing defects.

If the appeal by the two carriers fails, analysts say there are two likely outcomes for Spirit: Another airline could acquire it, or the company could use a bankruptcy filing to restructure its debt or sell its assets.

Spirit at its current valuation may be an attractive option for an airline looking to expand. Buying another airline is often the easiest and most efficient way to grow because there are few or no gates available at popular airports. Planes are also in short supply because the two main manufacturers — Airbus and Boeing — have a backlog of orders that stretches out for as much as five years.

Frontier Airlines, which proposed buying Spirit before JetBlue outbid it, or another low-cost carrier would most likely have the easiest time winning antitrust approval, said Dylan Carson, a lawyer at Manatt, Phelps & Phillips.

“That, I think, has the potential to secure the blessing of antitrust enforcers,” said Mr. Carson, a former Justice Department antitrust attorney.

Frontier’s cash-and-stock deal with Spirit was worth about $2.8 billion, compared with the $3.8 billion that JetBlue was willing to pay. Now that Spirit’s valuation has dropped, another airline may be able to strike a deal for a lower price.

But Frontier’s share price has also dropped, by more than 60 percent, since it offered to buy Spirit, which may pose a challenge for another bid. Frontier planned to use stock to pay for part of the earlier deal. A representative for Frontier declined to comment on whether it would consider another offer for Spirit.

Of course, Sprit’s fortunes could improve if demand for domestic air travel grows significantly, though most analysts don’t expect that to happen anytime soon.

Spirit is known for its no-frills experience. It packs more seats into its planes than other airlines, leaving passengers with less legroom. The company charges fees for carry-on bags, which are included in other airlines. Because many of its customers fly it to save money, Spirit has a limited ability to raise fares.

Kerry Tan, a professor at Loyola University Maryland who has studied airline fares, said that when Spirit offered service on a particular route, its competitors were forced to lower their prices.

“In my eyes, the worst-case scenario is that Spirit disappears and we’re left with a less competitive environment,” Dr. Tan said.

Judge William G. Young said in his ruling this week that if the proposed merger went through, JetBlue would absorb an airline that charged very low prices, significantly shrinking the category of such airlines and raising fares.

“Spirit is a small airline,” he said in the ruling. “But there are those who love it. To those dedicated customers of Spirit, this one’s for you.”

Madison Lee, a budget travel blogger, is one of those people.

She said Spirit’s cheap flights and influence on other airlines’ prices gave Americans “an equal opportunity to travel.” Ms. Lee, 25, has been to 60 countries, mostly using budget airlines.

“It may not come with all the bells and whistles, you might not feel as comfortable, but honestly, a lot of people, their purpose for travel isn’t necessarily to be comfortable,” she said. “Spirit gets the job done.”