24/7 Wall St. Insights

• Spirit Airlines Inc. (NYSE: SAVE) reportedly may go bankrupt.
• A Chapter 11 filing would likely wipe out investors completely.
• Also: Dividend legends to hold forever.

Spirit Airlines Inc. (NYSE: SAVE) reportedly may go bankrupt. Its stock has collapsed by 86% this year and continues its freefall. A Chapter 11 filing would likely wipe out investors completely.

Bloomberg reports that Spirit is struggling to avoid bankruptcy. The Wall Street Journal reports that creditors are close to a bankruptcy deal in which they will recoup part of their investment. According to that report, “The budget carrier has also been exploring restructuring its balance sheet through an out-of-court transaction, though recent talks have been more focused on reaching an agreement with bondholders and other creditors to support a chapter 11 filing, the people said.” Bondholders might walk away from such a deal as the carrier’s owners.

Spirit has not been profitable for four years. Its management has cut back the cities it services. Spirit hoped a merger with JetBlue would keep it viable. At the start of the year, the Justice Department won a case that said the combination would undermine competition in the airline industry. Ironically, if Spirit fails, it may not be a competitor.

Airline history over the past 50 years has been one of financial failure. Airlines for America says there have been over 100 carrier bankruptcies since 1978. In some cases, bondholders cut deals that got them financial returns. Common shareholders have rarely been so fortunate.

Trading in the Spirit penny stock may be a chance to make money. But, as it heads toward zero, the activity is hazardous.

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