Originally Posted by
SnowmanKiller
I don't think he's wrong. If you look at what they are doing on the docket, Spirit and it's creditors are setting up for a transaction. the most interesting thing is the most recent DIP amendment makes adjustments to the payment waterfalls and recovery rights of creditors.
If you amend those portions, then later agree to a transaction, you'd have to redo your work on the DIP amendment, so the amendment implies there is a transaction agreement whose details are known to the creditors.
Spirit also elected to defer the deadline to reject or retain certain leases, and I believe they have also opted to not reject certain aircraft. That's an action that could comport with maintaining the estate for a change of ownership.
Secondly, the DIP strongly rewards cash in favor of other assets like debt, equity, or other assets. Southwest fits that hole, but so do other airlines like Alaska - airlines with the balance sheet to please creditors. Whether they want to, I don't know.
What I do know is that there were three bidders for Spirit as of November. One of those was Frontier. Frontiers problem is they don't have a lot of cash, their debt is crappy, and equity is also bad. Their business is also low yielding or even money losing. Frontier will have to put down a lot of cash if they want to win a bid, to the point the success of the integration and turn around could be jeopardized. While the DIP and secured creditors may not care cause they'll cash out, the UCC and EC wouldn't like having their debts equities into that situation.
A bigger and better capitalized airline isn't going to have these issues, and now is likely the friendliest antitrust environment you can expect for awhile. Nows the time.
I hope it's Southwest, not quite there on thinking it has to be. I strongly suspect it isn't Frontier though.
So domestic yields have been horrible for quite a few quarters. Probably a couple of years. The largest domestic airline also has had horrible yields. Up to recently, the network carriers domestic yield's haven't been great either. Most of their high yields come from outside the US. Another words their is alot of ASM's chasing not many profitable RPM's. So you want an airline that had a 7% market share to merge with an airline that has a 16% market share. Which would do what? The largest overlap of Spirit was SWA. Just by the elimination of ASM's you get a better outcome on yields. So that is just the P&L side of things. Thats math. As far as the balance sheet, SWA has been spending lots of money buying back stock since the restriction was lifted due to the COVID money. I doubt senior management can ever sell the idea of buying Spirit to the BOD and more importantly the top 5 shareholders of SWA. One is very vocal. That transaction would certainly have to issue treasury stock which would dilute equity. After buying back $2.5 Billion in stockbuy back's, I doubt the BOD would even consider it. SWA's debt to EBITDAR would sky rocket. It would easily surpass the network carriers and ALK. The pillars of cashflows, balance sheet and the income statements would be stressed quite a bit. Wallstreet would not be happy. Bigger doesn't' necessarily mean better. AAL is very large airline yet their margins are not great. The quality of the network(ASM's, yields, market share in high yielding markets) is what matters. SWA is best to be on its own for now.