Merger talk between Frontier Group Holdings (ULCC -1.65%) and Spirit Airlines (SAVEQ -6.10%) is reportedly heating up again, and investors are excited about the possibility.
Shares of Spirit soared as much as 50% at the open on Wednesday and traded up about 40% as of 11 a.m. ET.
Third time's the charm?
The future of Spirit Airlines has been up in the air for some time now. In 2022, the airline agreed to combine with Frontier but JetBlue Airways stepped in with its own bid, eventually agreeing to acquire Spirit.
The JetBlue/Spirit combination fell apart earlier this year under the weight of regulatory scrutiny. The breakup left Spirit in a difficult position, with significant debt coming due and dealing with an engine issue that has grounded part of its fleet.
Late last week, Spirit negotiated a two-month extension to refinance or extend debt coming due in 2025. Should Spirit not come up with a solution for its debt problems the airline could be forced to fly into bankruptcy.
Enter Frontier, again. The Wall Street Journal reports that the two airlines have renewed talks about a potential merger. The talks are in their early stages, the report notes, and there is no guarantee a deal will be reached.
Is Spirit Airlines stock a buy?
A Frontier/Spirit combination always made more sense than a JetBlue/Spirit deal and would likely be easier to get past regulatory scrutiny. Spirit faces an uphill battle on its own, and combined the two airlines would have the scale needed to better compete against industry giants.
That said, investors might be getting ahead of themselves. The report states that a merger deal would likely happen as part of Spirit restructuring its debt in bankruptcy. If that is the case, equity holders would likely be wiped out before the deal gets over the finish line.
If Spirit can find a way to survive without a bankruptcy filing, investors should be rewarded handsomely. But given that so many of the options available at this moment involve a filing, buying into Spirit right now is a high-risk move.
