When a federal judge said JetBlue and Spirit Airlines — the two carriers responsible for most of the flights at Fort Lauderdale-Hollywood International Airport — could not merge, Helane Becker uttered the B-word: bankruptcy.
"It was really more at the judge than it was at Spirit," Becker said. She has 40 years experience on Wall Street and follows the airline industry for investment bank TD Cowen.
After a federal judge in Massachusetts ruled JetBlue’s proposed purchase of Spirit Airlines was anti-competitive, she published an analysis that concluded Spirit may be headed to bankruptcy protection and eventually liquidation. She knows how distressing that possibility is for employees.
"There are a lot of people reliant on Spirit for their livelihood. I understand that. And I'm not unsympathetic towards it. I'm very sympathetic towards it," she told WLRN. "I didn't come from money and my father did lose his job right as I was entering college. I know how frightening that is for people."
At the end of Judge Thomas Young’s decision rejecting the buyout, he wrote, “To those dedicated customers of Spirit, this one’s for you.”
Becker wrote that the decision was "unfortunate. We believe Spirit is likely to look for another buyer (maybe private equity?) but a more likely scenario is a Chapter 11 filing, followed by a liquidation."
It's like they're in the middle of the river. The judge decided not to throw them a lifeline.TD Cowen analyst Helane Becker
Spirit recently sold and leased back 25 of its planes. That helped raise $419 million. But it also highlights another risk for Becker — more than half of Spirit's fleet is leased from other owners.
"It seemed like nobody, neither the Justice Department nor the judge, thought about what happens in a situation where Spirit doesn't own its aircraft," she said. "Just because you think the airline should be independent, doesn't mean that every one of those planes is going to stay."
A turbulent reality
Spirit hasn’t made a profit since before the pandemic, has more than $1 billion of IOUs coming due next year, has paused hiring pilots, and offered some employees buyouts in hopes of cutting expenses. It’s a turbulent financial reality that the JetBlue buyout was designed to improve.
"We just want them to be able to cross the river and to get to the other side," Becker said. "It's like they're in the middle of the river. The judge decided not to throw them a lifeline. They're kind of drowning and we just want them to be able to get to the other side where they can thrive."
After the judge blocked the buyout and after Becker raised the concern about a future bankruptcy, the company said it would appeal the ruling.
It also updated its financial guidance for the fourth quarter of last year in hopes of reassuring passengers and investors. It expects revenue to be at the high end of its forecast thanks to strong holiday travel and said it had about $1.5 billion in cash and credit available to it.
Plus, the company is negotiating with jet engine manufacturer Pratt and Whitney over a problem with an engine that has kept more than two dozen of its planes on the ground. That settlement may include some cash.
Still, Spirit’s stock price has been cut in half compared to where it was trading before last week’s court decision.
To those dedicated customers of Spirit, this one’s for you.U.S. District Court Judge William Young
"The real challenge comes in with the debt and having to refinance that with interest rates at a higher level. That does impact their bottom line significantly," said Bob Swindell, CEO of the Greater Fort Lauderdale Alliance, the economic development arm of Broward County.
"I think there's probably some flexibility and maybe some margin they can bring back into the business ultimately [by] raising prices a little bit. I know that the passengers don't like to hear that," he said.
Falling airfares in the second half of last year hurt the industry, especially the ultra low cost operators such as Spirit. The average fare at Fort Lauderdale-Hollywood International Airport, where Spirit has the largest marketshare, fell 8% in the third quarter of 2023 compared to a year earlier.
Spirit is building new headquarters in Dania Beach. Spirit and JetBlue signed an agreement with the stateof Florida committing a merged company to bring at least 1,000 new jobs to South Florida.
"I never was worried about the loss of jobs here. I just saw it as a net gain for us," Swindell said.
The company chose to break with tradition and not hold a conference call after its third quarter financial results in October. It plans to have one when its fourth quarter results are released Feb. 8.
Financial analyst Becker thinks it needs to move on from the blocked merger. "They're going to array routes from most profitable to least profitable, and they're going to cut the least profitable routes, and make sure the most profitable routes can continue to fly," she said.
Spirit’s busiest routes in January were flights between Fort Lauderdale and Atlanta and between Fort Lauderdale and Newark, New Jersey, according to aviation data firm Cirium.
The carrier started flying a new route in December between Miami and Minneapolis.
But Spirit passengers hoping to fly between South Florida and Denver will no longer board one of its yellow planes. Spirit cut its flights in and out of Denver. The last flight was earlier this month.
