How did Spirit Airlines stock tank? Here’s why


Posted June 03, 2019 11:00:00By John M. Dvorak, The Associated PressSpirit Airlines, which owns the largest carrier in the world, announced plans Wednesday to buy back about $1 billion in stock, raising the total value of its shares to $8 billion, as part of an aggressive restructuring plan.

The move comes amid a series of setbacks for the company, including an accounting scandal and an increasingly hostile market.

The company said it expects the new stock to be fully diluted.

The stock has fallen by nearly 20% over the past year, and analysts are skeptical of its ability to recover.

The buyback will come as Spirit’s market value is nearly half that of its main competitor, United Airlines, said David Sperling, a research analyst at Morningstar Inc. in Boston.

United shares have risen by about 12% this year, but are down nearly 20%.

Spirit also has struggled with falling ticket sales and declining revenue, while the airline has struggled to generate new customers and keep planes on the ground.

The airline has seen its stock decline more than 50% over two years.

United said it plans to cut about 3,000 jobs, including 1,000 in Chicago and Chicago-area regional hubs.

Spirit said it will sell the planes and cut the number of planes it has flying to more than 10 million each year.

Spirit said it would use the proceeds to “support the development of the Spirit fleet, expand its services, and invest in strategic initiatives, including new aircraft, new service options, and other products.”

The airline also said it intends to sell its domestic network and reduce the number it flies to about 6 million annually.

The new stock buyback follows a wave of other recent stock buybacks.

Spirit recently bought $1.6 billion in shares of American Airlines Group Inc., an airline that is owned by billionaire businessman Carl Icahn.

Icahn has said he plans to give up more than $3 billion in cash to buy out the rest of the airline’s stake.

Last year, Spirit also bought more than 3,300 shares of Delta Air Lines Inc., another struggling carrier, for $1 million.

That deal was a major step toward getting the airline back on track, but it did not generate enough money to make up for the losses from the financial crisis.