Spirit Airlines stock jumped more than 20% this morning after it revised its financial forecast, suggesting it may not be doing as bad as many analysts have surmised. Meanwhile, Spirit is pushing JetBlue to appeal the decision blocking the merger between the two airlines. I see a potential link here.
Spirit Airlines Projects Smaller Losses, Wants JetBlue To Promptly Appeal Merger Decision
In an SEC filing released this morning, Spirit reports that its projected Q4 loss will narrow from a negative margin of 15-19% to 12-13%. Spirit credits a number of factors for these more favorable numbers:
- lower fuel costs (driven by better than expected fuel efficiency)
- lower airport costs and other items (driven by strong operational performance and reliability)
Spirit also announced that discussions continue with Pratt & Whitney regarding “fair compensation for the financial damages” related to the geared turbo fan (GTF) neo engine availability issues. The hint: a settlement is coming.
I’m not into the Jedi mind tricks, but try on this theory. With merger now ruled unlawful, JetBlue faces two choices. One path is to appeal the ruling in an effort to consummate the merger in its present form. The other, which Judge Young specifically held out as an option, is that the merger could conceivably proceed under new conditions. Could this sudden improvement in Spirit’s financial outlook–especially when some analysts are suggesting bankruptcy is imminent–push JetBlue to more vigorously appeal the ruling rather than try to renegotiate the deal?
Thus, it is little surprise that Reuters reports that Spirit is placing pressure on JetBlue to appeal:
Spirit has told JetBlue that their deal contract requires them to exhaust legal options to complete their deal, and that they should appeal the judge’s ruling.
While I do believe that the Clayton Act and the jurisprudence that interprets this law do not necessitate blocking this merger, that does not change the fact (and I would say fact rather than theory that JetBlue is vastly overpaying for Spirit considering its current financial condition).
This buyout from JetBlue was the best thing that could have ever happened to Spirit. A deal that takes into account its current financial state (still losing money, despite not losing as much) would not result in such a sweet deal for Spirit shareholders.
CONCLUSION
Spirit Airlines revised its financial forecast, predicting its losses would not be as steep as initially forecast. Meanwhile, it is privately pushing JetBlue to appeal this week’s decision blocking the merger. I do see a potential link here: the more attractive Spirit looks, the more likely JetBlue is to fight for it.
image: Tomás Del Coro
Doesn’t Spirit walk away with $400,000,000 if the JetBlue deal is not consummated?
Is it all possible that JetBlue is actually relieved? Ya know, buyers remorse and a way to an out.
As of this afternoon (Jan 19), both B6 and NK stated they will file an appeal.
If they win the appeal, I see Chapter 11 or 7 in the next 12 months for both.