JetBlue-Spirit Merger Hits Turbulence: Analysts Downgrade Spirit Airlines Stock

JetBlue Airways Corp JBLU and Spirit Airlines Inc SAVE shares have been trading lower since the proposed Spirit-JetBlue merger hit a roadblock Tuesday. A U.S. District Court judge blocked the acquisition of Spirit Airlines by JetBlue, saying that the deal would raise the cost of airfare and reduce the number of flights available.

JetBlue stock was down 7.5% and Spirit Airlines stock 22.29% during the first two hours of trading Thursday.

Also Read: Biden Hails Judge’s Decision To Block Spirit, JetBlue Merger: ‘Capitalism Without Competition Isn’t Capitalism’

What JetBlue, Spirit Analysts Have To Say

Ratings and price targets for JetBlue Airways stock remained unchanged by Susquehanna Financial Group analyst Christopher N. Stathoulopoulos who reviewed the stock.

BofA Securities analyst Andrew G. Didora changed his rating from No Rating to Underperform. Didora had a price target of $5 on Spirit Airlines stock.

Susquehanna’s Stathoulopoulos also issued a downgrade for the stock from Neutral to Negative. The analyst drastically reduced the price target on Spirit Airlines stock from $15 to $5.

The Spirit Airlines Thesis:

BofA Securities’ Didora said Spirit Airlines has a difficult path ahead to return to its historical level of growth and profitability. This is further exacerbated by approaching debt maturities. Fundamentals are further pressured by a tough domestic capacity environment and GTF engine repairs. These inhibit growth and cost plans, hurting Spirit’s traditional ultra-low-cost business model, he saiud.

Susquehanna’s Stathoulopoulos said Spirit Airlines, on a standalone basis, is facing significant headwinds through at least 2024.

The Spirit-JetBlue Merger’s Future?

Susquehanna’s Stathoulopoulos sees little likelihood of JetBlue reworking the deal. And with this development, Spirit Airlines’ fundamental challenges come into sharper focus. Any other potential bidder will now have to contemplate what was a lengthy and arduous regulatory review as well as a challenging operating landscape for U.S. carriers into 2024, he said.

Will JetBlue appeal the ruling or restructure the deal?

Susquehanna Financial Group views either of these situations unlikely, as:

1. JetBlue CEO Robin Hayes is stepping down next month due to health concerns.
2. Investor interest in the deal has been lukewarm, posing additional risks related to financing and integration, given the notable changes in the operating environment since the deal’s initial announcement.
3. The incoming JetBlue CEO, Joanna Geraghty, who currently serves as the company’s president and COO, has a chance to lead the company independently. This presents an opportunity to navigate the company’s course without necessarily pushing for a revised deal that may face uncertainties in approval.

Now Read: Justice Department Statements On District Court Decision To Block JetBlue’s Acquisition Of Spirit Airlines

Photo: Courtesy Spirit Airlines, JetBlue.