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Spirit Airlines sells 23 aircraft, boosts liquidity outlook

Published 10/25/2024, 05:26 AM
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Spirit Airlines , Inc. (NYSE:SAVE) announced on Thursday that it has entered into a binding agreement to sell 23 of its A320ceo/A321ceo aircraft to GA Telesis, LLC for approximately $519 million. The sale is expected to increase the airline's liquidity by about $225 million through the end of 2025, after considering the discharge of related aircraft debt. The aircraft deliveries to GA Telesis are scheduled to commence this month and continue through February 2025, subject to the execution of definitive documentation and customary conditions.

In addition to the aircraft sale, Spirit provided preliminary third-quarter results, indicating an adjusted operating margin that is projected to be around 300 basis points higher than the mid-point of its previous guidance. This improvement primarily stems from stronger-than-anticipated revenue and the early success of the company's transformation plan.

Spirit also reported a slight decrease in third-quarter capacity by 1.2% year over year, with an expected fourth-quarter capacity reduction of approximately 20% compared to the previous year. Looking ahead, the airline anticipates a mid-teens percentage decrease in capacity for the full year 2025, reflecting the aircraft sale, retirements of its A319ceo fleet, and delivery delays of new A321neo aircraft.

The company has identified cost reduction opportunities amounting to roughly $80 million annually, which will begin to be implemented early in 2025. These savings are largely attributed to a workforce reduction aligned with expected flight volumes.

Spirit remains in discussions with note holders regarding the maturities of its senior secured notes due in 2025 and convertible senior notes due in 2026.

The airline expects to close 2024 with over $1.0 billion in liquidity, which includes unrestricted cash, short-term investment securities, and other liquidity initiatives, assuming successful completion of these initiatives currently underway.

In other recent news, Spirit Airlines has been making significant financial maneuvers as it navigates a challenging economic landscape. The company has recently extended its credit agreement with U.S. Bank National Association, providing temporary relief for its looming debt obligations. This move follows an unsuccessful $3.8 billion merger attempt with JetBlue Airways (NASDAQ:JBLU), which was blocked by the U.S. Justice Department in an effort to prevent industry consolidation.

Simultaneously, analysts from Susquehanna and TD Cowen have expressed cautious outlooks for Spirit Airlines, maintaining negative ratings on the company's stock and emphasizing the importance of its upcoming financial decisions. Susquehanna has also reduced its financial outlook for the airline, citing expectations of a weaker operating and profit margin.

Furthermore, Spirit Airlines is reportedly in preliminary discussions about a potential merger with Frontier Airlines. This comes as the company grapples with financial difficulties, having failed to turn a profit in five of the last six quarters. The proposed merger, if it occurs, is expected to be part of a restructuring process for Spirit, which may include bankruptcy to manage its debts and other financial obligations. As these recent developments unfold, the company continues to focus on enhancing its liquidity and financial flexibility.

InvestingPro Insights

Spirit Airlines' recent strategic moves align with several key insights from InvestingPro. The company's decision to sell 23 aircraft for $519 million to boost liquidity addresses its significant debt burden, as highlighted by an InvestingPro Tip. This move is crucial, given that Spirit "may have trouble making interest payments on debt" according to another tip.

The airline's focus on cost reduction and capacity adjustments reflects its efforts to improve financial health. InvestingPro data shows a concerning Revenue Growth of -7.07% in the last twelve months, with an Operating Income Margin of -13.32%. These figures underscore the importance of Spirit's transformation plan and cost-cutting initiatives.

Despite these challenges, InvestingPro Tips indicate that Spirit is "trading at a low Price / Book multiple" of 0.42, which could be of interest to value investors. Additionally, the stock has shown a "significant return over the last week," with InvestingPro data reporting a 1 Week Price Total Return of 102.63%.

For investors seeking a more comprehensive analysis, InvestingPro offers 18 additional tips for Spirit Airlines, providing a deeper understanding of the company's financial position and market performance.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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