(Reuters): Shares of ultra-low-cost carrier Spirit Airlines fell 17 per cent in morning trade on Wednesday, a day after a U.S. judge blocked the airline’s planned US$3.8 billion merger with rival JetBlue Airways.

Spirit’s stock shed nearly half of its market value on Tuesday after a federal judge agreed with the U.S. Department of Justice that the airline’s deal with JetBlue would harm ticket buyers. The decision has left the company in limbo, with analysts saying it could seek out another buyer or consider a bankruptcy filing.

Bankruptcy filing

Spirit has had a hard time remaining profitable due to increased operating expenses and ongoing supply chain problems, raising concerns about the company’s ability to repay its remaining debt due to mature next year.

Some analysts said the company might contemplate a bankruptcy filing to streamline its balance sheet and reorganise into a financially robust airline.

The best-case scenario for Spirit would be a Chapter 11 filing, followed by a liquidation (Chapter 7), according to TD Cowen analyst Helane Becker.

Each airline now seems to face crucial strategic and financial decisions, Citi analyst Stephen Trent wrote in a note while maintaining neutral ratings on both stocks.

A deal with JetBlue would have created the fifth-largest carrier in the U.S. and would have been a shot in the arm for Spirit.

JetBlue shares, which closed 5.0 per cent higher on Tuesday, were also down 6.2 per cent in morning trade.

“We now see a very, very low probability of the merger being consummated,” Deutsche Bank analysts wrote in a note citing regulatory hurdles, even if the carriers decide to appeal.

Spirit has been among those airlines hardest hit by an issue with RTX’s Pratt & Whitney Geared Turbofan (GTF) engines, resulting in the grounding of several of its jets and which is only expected to increase in 2024.

Steep discounting

Excess capacity in some of its key markets is hurting Spirit’s pricing power too, forcing the company to indulge in steep discounting to sell enough seats, making the road to recovery bumpy.

“We see little valuation support for Spirit in the absence of a merger,” J.P.Morgan equity analyst Jamie Baker said.

Spirit’s ratio of enterprise value to sales for the next 12 months is 1.3, compared to 0.6 for suitor JetBlue, as per LSEG data. A low ratio implies a more attractive investment opportunity.

The airlines can appeal the ruling. In a joint statement, JetBlue and Spirit said they were evaluating “next steps as part of the legal process.”