Spirit Airlines just broke a record (but not the kind of record anyone ever wants to have their name in the Guinness Book of World Records). 

Its stock just plunged 64% this morning, marking the steepest drop in the airline’s history. And, in case you’re wondering, this came right after news leaked that Spirit is knee-deep in talks with creditors to "restructure" its debt. Translation? They’re flirting with bankruptcy like it’s their high school crush.

Let’s take a journey down Spirit’s “merger” memory lane. Spirit and mergers go together like a middle seat and screaming toddlers. In 2022, they almost walked down the aisle with Frontier (until JetBlue came in with a better pickup line). Of course, that got shot down by a judge who wasn’t too excited about the monopoly vibes. Flash forward to now, and Spirit and Frontier rekindled talks, only for those to crash and burn too. It’s almost like no one wants to slow dance with Spirit at the corporate prom (awkward silence included).

Right now, Spirit’s financials have more red flags than a Target clearance sale. Since the pandemic, they’ve watched $2.5 billion vanish in thin air. And it’s not getting any better. Passengers might be flying a smidge more, but they’re spending less, with fares per mile down 10% this year alone. In simple terms: people are willing to board Spirit (they’re just not willing to pay Spirit prices).

Oh, and there’s a little matter of over $1 billion in debt coming due next year. With no sugar daddy in sight, TD Cowen analysts are already prepping for a “significantly smaller” Spirit post-restructuring, which could involve selling planes or ditching leases. As one analyst noted, this news is bound to make travelers think twice before booking. “Just what Spirit needs,” said no one ever.

In case you were waiting on Spirit’s latest financial results, don’t cancel your weekend plans. The airline announced it’s shelving its Q3 results release because, frankly, they’re a bit busy trying to avoid bankruptcy. Spirit’s been in “constructive discussions” with its senior noteholders (those guys they owe big bucks to), hoping to work out a deal that might let the company stay in the air.

Now, here’s the problem: if Spirit actually hammers out a deal with its creditors, existing stockholders might be left holding, well, nothing. That’s right, zilch. Shareholders could be looking at a stock cancellation, leaving them with a whole lot of sweet memories and zero equity. And if Spirit doesn’t land this deal? Well, they’re “exploring all alternatives,” which is corporate-speak for “how much worse can this get?”

To make matters worse, there are currently zero buy ratings on Spirit’s stock, and Bloomberg data shows analysts have stacked up 8 sell recommendations against just 4 holds. Maybe because Spirit is down 91% this year?

TD Cowen’s Tom Fitzgerald warns that restructuring might only be the beginning. According to him, Spirit could be forced to offload whatever “encumbered” assets (read: planes) they have left to help pay down debt. 

Spirit’s situation might sound familiar if you’ve followed airline bankruptcies over the decades. From PanAm to American Airlines, U.S. airlines have a long history of using Chapter 11 protection as a reset button, whether to renegotiate debts or, in some cases, fold up altogether. But the last major airline to go through this was American in 2013, and since then, the stakes (and the competition) have only grown.

But if somehow by the hair of their chinny chin chin, Spirit Airlines survives, this could be a prime buying opportunity similar to when Carvana was on the verge of bankruptcy. Back then, the stock fell to just $4 before shooting up to $244 (a wet-dream 6,000% gain for anyone bold enough to grab it while it was down).

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Stock.News does not have positions in companies mentioned.