Stifel clients seem to believe that a Spirit Airlines Incorporated SAVE 5.81% buyout of Frontier Airlines is inevitable. However, analyst Joseph DeNardi doesn’t see a deal as cut and dry.

According to DeNardi, while Spirit is likely very interested in a buyout, its hands are somewhat tied at the moment. If Spirit chooses to do the estimated $2.5 billion deal with debt, it would result in an estimated post-deal leverage of 4x adjusted net debt to EBITDAR. That’s an uncomfortable amount of leverage for an airline.

However, going the equity route is also not particularly appealing at Spirit’s current valuation.

“If Spirit wants to use equity, we suspect it will wait until its multiple recovers,” DeNardi explains.

Ultimately, Stifel does believe the buyout will happen, but maybe not as quickly as the market anticipates.

DeNardi admits…

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