(Reuters) – Shares of ultra-low-cost carrier Spirit Airlines fell 10% in premarket trade on Wednesday, a day after a U.S. judge blocked the airline’s planned $3.8 billion merger with rival JetBlue Airways.
Spirit’s stock took a substantial hit, shedding nearly half of its market value on Tuesday after a federal judge agreed with the U.S. Department of Justice that the airline’s deal with JetBlue would harm ticket buyers.
JetBlue shares, which closed 5% higher on Tuesday, were also down 1.3% before the bell, in line with other airline stocks.
“We believe this is a positive for JetBlue as business at Spirit turned negative between the time the merger was announced to now,” TD Cowen analyst Helane Becker wrote in a note.
The best-case scenario for Spirit would be a Chapter 11 filing, followed by a liquidation (Chapter 7), Becker added.
Spirit has faced difficulties in achieving profitability due to a surge in operating expenses and ongoing supply chain problems, which has raised concerns about the company’s ability to repay its remaining debt that is due to mature next year.
Each airline now seems to face crucial strategic and financial decisions, Citi analyst Stephen Trent wrote in a note while maintaining “neutral” ratings on both stocks.
A deal with JetBlue would have created the fifth-largest carrier in the U.S. and would have been a shot in the arm for Spirit.
“We see little valuation support for Spirit in the absence of a merger,” J.P.Morgan equity analyst Jamie Baker said.
Spirit’s ratio of enterprise value to sales for the next 12 months is 1.3, compared to 0.6 for suitor JetBlue, as per LSEG data. A low ratio implies a more attractive investment opportunity.
The airlines can appeal the ruling. In a joint statement, JetBlue and Spirit said they were evaluating “next steps as part of the legal process”.
(Reporting by Shivansh Tiwary in Bengaluru; Editing by Krishna Chandra Eluri)
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