Spirit Airlines Stock Plunges on Bankruptcy Buzz

A yellow Spirit Airlines airplane flying in blue skies — (Image credit: Justin Sullivan/Getty Images)

Spirit Airlines (SAVE) stock is one of the worst stocks on Friday, down 26% at last check, on a report that the embattled airline company could file for bankruptcy in the near future.

Spirit has been exploring ways to restructure its balance sheet since August but has recently been focused on reaching a deal with its bondholders and creditors to support a Chapter 11 bankruptcy filing, according to The Wall Street Journal, citing people familiar with the matter.

Spirit currently holds $3.3 billion in debt and has not turned a profit since before the COVID-19 pandemic.

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The news of a potential bankruptcy filing for Spirit Airlines comes just 10 months after its failed merger attempt with JetBlue Airways (JBLU). The two airlines tried to combine to create a "national low-fare, high-value competitor to the Big Four airlines," but the U.S. Department of Justice sued to block the deal on grounds that it would reduce competition and increase prices on domestic travelers. The airlines subsequently terminated their agreement.

"After discussing our options with our advisors and JetBlue, we concluded that current regulatory obstacles will not permit us to close this transaction in a timely fashion under the merger agreement," said Spirit Airlines CEO Ted Christie in a March 4 statement. "We are disappointed we cannot move forward with a deal that would save hundreds of millions for consumers and create a real challenger to the dominant 'Big 4' U.S. airlines."

What does Wall Street think about Spirit Airlines stock?

With today's decline, Spirit Airlines shares are now down 90% for the year to date. And given SAVE's issues on and off the price charts, it's unsurprising to see that Wall Street is overwhelmingly bearish on the industrial stock.

According to S&P Global Market Intelligence, the consensus analyst target price for SAVE stock is $2.43, representing implied upside of 8% to the stock's October 3 close. Meanwhile, the consensus recommendation is Sell. However, price targets may very well be adjusted lower following the news of the potential bankruptcy.

Financial services firm Susquehanna Financial Group is one of those with a Negative rating (equivalent to a Sell) on the penny stock and a $2.50 price target.

"We continue to see a challenging operating backdrop for U.S. carriers into 3Q, with low-cost carrier Alaska Airlines' 'book now, pay later' sales promo reinforcing our view that there are still too many U.S. domestic seats chasing the same (leisure) traveler," said Susquehanna analyst Christopher Stathoulopoulos in a July 16 note.

Joey Solitro is a freelance financial journalist at Kiplinger with more than a decade of experience. A longtime equity analyst, Joey has covered a range of industries for media outlets including The Motley Fool, Seeking Alpha, Market Realist, and TipRanks. Joey holds a bachelor's degree in business administration.