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Spirit Airlines (SAVE) Inks Deal With International Aero Engines

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Spirit Airlines (SAVE - Free Report) has inked a significant agreement with International Aero Engines, or IAE, an affiliate of Pratt & Whitney. Per the deal, IAE will extend monthly credits to Spirit Airlines through the current-year end. Credit will be given to SAVE for each aircraft unavailable due to problems with geared turbofan ("GTF") engines, discovered in July 2023. GTF engines are produced by Pratt & Whitney.

The agreement, estimated to bolster Spirit's liquidity by $150 million to $200 million, hinges on the number of days aircraft are grounded due to engine issues throughout 2024. Additionally, Spirit has agreed to release IAE from any claims related to impacted engines until the end of the year, with further discussions planned with Pratt & Whitney for ongoing support beyond 2024.

Spirit Airlines, one of the largest operators of GTF-powered aircraft in the United States, has faced significant challenges stemming from engine-related complications. The airline has grappled with grounding its A320neo fleet for inspections and anticipates an escalation in the number of grounded aircraft, from an average of 13 in January to approximately 40 by December 2024.

Spirit also encountered escalating operating costs, supply chain disruptions and financial strain, exacerbated by the collapse of a proposed merger with JetBlue Airways (JBLU - Free Report) .  

We remind investors that in March, JetBlue’s $3.8 billion acquisition of Spirit Airlines was canceled on antitrust grounds. JBLU’s management believes that the legal and regulatory approvals necessary for the deal’s success “were unlikely to be met” by the dates specified. Following the termination, JetBlue paid Spirit $69 million. Moreover, the termination resolved all outstanding matters pertaining to the deal. While the merger agreement was in effect, shareholders of SAVE received roughly $425 million in total prepayments. 

The above developments have cast doubt on SAVE’s ability to manage debt obligations. The agreement with IAE represents a crucial step for Spirit Airlines in navigating these turbulent times. As the airline works to address its liquidity concerns and stabilize operations amid broader uncertainties within the aviation industry, the partnership with IAE offers a lifeline

Price Performance

Due to the woes, Spirit Airlines shares have plummeted 70.5% year to date against its industry’s 7.7% gain.

Zacks Investment Research
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Zacks Rank

SAVE currently carries a Zacks Rank #3 (Hold).

An Airline Stock to Consider

Investors interested in the airline industry may consider SkyWest (SKYW - Free Report) , currentlysporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

SkyWest's fleet modernization efforts are commendable. The Zacks Consensus Estimate for SKYW’s 2024 earnings has improved 26.3% over the past 60 days. Shares of SkyWest have surged 213% in the past year.

SKYW has an expected earnings growth rate of more than 100% for 2024. The company delivered a trailing four-quarter earnings surprise of 128.02%, on average.


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