Spirit Airlines Looks to Raise More Cash
Spirit Airlines (NYSE: SAVE) has been one of the most volatile airline stocks in 2020. On the one hand, Spirit is well positioned for an environment where demand is skewed toward bargain-hunting leisure travelers. On the other hand, its business plan is predicated upon rapid growth, and it has one of the weaker balance sheets in the industry due to its growth orientation.
This means that Spirit Airlines could return to profitability faster than most of its rivals once air travel demand rebounds in a meaningful way. However, this might not happen for many months (or even years), and the airline needs to survive in the meantime. As a result, Spirit Airlines announced plans to raise $600 million of new debt this week. And like several of its peers, it is turning to its loyalty program as a source of collateral.
Spirit Airlines ended the second quarter with over $1.2 billion of cash and investments on hand. However, as of late July, it expected average daily cash burn of $3 million to $4 million during the third quarter. Based on the midpoint of that range, Spirit was in danger of violating some of its debt covenants by early next year.
Source Fool.com
