Since the hyped merger between $JBLU and Spirit Airlines was struck down by the judge, the share price of both budget airlines plunged. Many worried that Spirit Airlines, who's already burning cash due to the decline in air travel, is on the road to bankruptcy. According to Helane Becker, an airline analyst at TD Cowen, it's more likely that Spirit files for Chapter 11 bankruptcy and then liquidates its assets rather than be able to find another buyer. So far, Becker is right because other airlines like United aren't looking to acquire Spirit Airlines.

To ensure that the airline can have positive cash flow in the second quarter of 2024, Spirit Airlines plans to sell 25 aircraft and lease them back in a move that generated $419 million. Even if air travel demand is expected to grow for the long run, leasing gives airlines flexibility as they can choose lease terms and ensure that they won't be stuck with excess capacity during recessionary times. For an industry that is highly cyclical, leasing aircraft helps them survive.

It's a high risk trade to buy the dip on Spirit Airlines and I think it's worth diving deeper into the budget airline to understand the risk-reward opportunity present in the stock.