JetBlue Airways on Friday cast doubt on the future of its $3.8 billion merger deal Spirit AirlinesSaying that it may be unable to meet certain conditions required as part of the agreement for unspecified reasons.
As a result, JetBlue said it has notified Soul The merger agreement could be finalized as early as Sunday.
Spirit shares were down 11.8% at $6.37 on Friday afternoon, bringing their losses to about 55% this month due to a U.S. judge’s move to block the deal. JetBlue shares were up 2% at $5.44.
JetBlue said it continues to evaluate options under the agreement and will comply with its merger obligations until the agreement is terminated. The New York-based airline could not immediately be reached for comment.
In response, Spirit said there were no grounds to terminate the merger agreement. It said it would continue to comply with its obligations and was expecting JetBlue to do the same.
Without the JetBlue deal, Spirit faces a tougher road ahead as the ultra-low-cost carrier grapples with weak demand in its key markets as it looks to return to sustainable profitability. Some analysts have also suggested that the company may face bankruptcy if it cannot boost finances.
Spirit said it is assessing options to refinance its 2025 debt maturities, and is not pursuing or engaging in a statutory restructuring.
Last week, the company had said the compensation it receives from supplier Pratt & Whitney over the grounding of several aircraft will be an important source of liquidity over the next few years.
Earlier this month, a US judge blocked the airline’s planned merger with JetBlue after finding that the proposed deal could threaten competition in the US aviation market and hurt ticket prices. Both airlines have said that they will appeal against this decision.
However, JetBlue is mindful that Spirit’s business has deteriorated significantly since agreeing to a July 2022 alliance, sources told Reuters.
If the appeals court affirms the lower court’s decision, “JetBlue shareholders can breathe a sigh of relief that the carrier won’t have to bear Spirit Airlines’ high debt load or its cash-burning operations,” the Citi analyst said. stephen trent Wrote in a note. Trent said there was only a 2% chance the appeal would be successful.
When Spirit originally accepted JetBlue’s acquisition offer, the market value of its equity was $3.8 billion. At that time its enterprise value, including its outstanding debt, was $7.6 billion. Since then, the company’s market capitalization has fallen to about $788 million.
If JetBlue is able to close the transaction with new debt to fund the original transaction, its debt-to-EBITDA ratio will rise to 12 times or more at the end of this year, rising to 9 times at the end of 2023. More, Moody’s Investors Service said this week.
JetBlue’s annual interest burden will also increase from about $375 million to about $620 million in 2023, Moody’s said.
“JetBlue dodges a bullet,” JPMorgan analysts said after a judge blocked the proposed merger earlier this month.
“While this frees JetBlue from an expensive merger, we believe there is no longer any agreement between management and the board,” he said.
As a result, JetBlue said it has notified Soul The merger agreement could be finalized as early as Sunday.
Spirit shares were down 11.8% at $6.37 on Friday afternoon, bringing their losses to about 55% this month due to a U.S. judge’s move to block the deal. JetBlue shares were up 2% at $5.44.
JetBlue said it continues to evaluate options under the agreement and will comply with its merger obligations until the agreement is terminated. The New York-based airline could not immediately be reached for comment.
In response, Spirit said there were no grounds to terminate the merger agreement. It said it would continue to comply with its obligations and was expecting JetBlue to do the same.
Without the JetBlue deal, Spirit faces a tougher road ahead as the ultra-low-cost carrier grapples with weak demand in its key markets as it looks to return to sustainable profitability. Some analysts have also suggested that the company may face bankruptcy if it cannot boost finances.
Spirit said it is assessing options to refinance its 2025 debt maturities, and is not pursuing or engaging in a statutory restructuring.
Last week, the company had said the compensation it receives from supplier Pratt & Whitney over the grounding of several aircraft will be an important source of liquidity over the next few years.
Earlier this month, a US judge blocked the airline’s planned merger with JetBlue after finding that the proposed deal could threaten competition in the US aviation market and hurt ticket prices. Both airlines have said that they will appeal against this decision.
However, JetBlue is mindful that Spirit’s business has deteriorated significantly since agreeing to a July 2022 alliance, sources told Reuters.
If the appeals court affirms the lower court’s decision, “JetBlue shareholders can breathe a sigh of relief that the carrier won’t have to bear Spirit Airlines’ high debt load or its cash-burning operations,” the Citi analyst said. stephen trent Wrote in a note. Trent said there was only a 2% chance the appeal would be successful.
When Spirit originally accepted JetBlue’s acquisition offer, the market value of its equity was $3.8 billion. At that time its enterprise value, including its outstanding debt, was $7.6 billion. Since then, the company’s market capitalization has fallen to about $788 million.
If JetBlue is able to close the transaction with new debt to fund the original transaction, its debt-to-EBITDA ratio will rise to 12 times or more at the end of this year, rising to 9 times at the end of 2023. More, Moody’s Investors Service said this week.
JetBlue’s annual interest burden will also increase from about $375 million to about $620 million in 2023, Moody’s said.
“JetBlue dodges a bullet,” JPMorgan analysts said after a judge blocked the proposed merger earlier this month.
“While this frees JetBlue from an expensive merger, we believe there is no longer any agreement between management and the board,” he said.
