Spirit Airlines (FLYY) shares crashed another 40% on Tuesday after the low-cost airline issued a stark warning: It may not survive as a going concern unless it raises fresh capital.  

Last month, the air carrier said it will furlough another 270 pilots this fall to further reduce costs, but the announcement this morning suggests its financials are not improving as quickly as creditors want. 

The budget airline has been a disaster for investors ever since it emerged from bankruptcy about five months ago. At the time of writing, Spirit Airlines stock is down well over 65% compared to its price in late April. 

Here’s Why You Should Sell Spirit Airlines Stock Immediately

If Spirit Airlines fails to secure additional funding, it risks sliding back into insolvency, this time without the cushion of restructuring momentum. 

The air carrier has already furloughed hundreds of pilots and faces a brutal pricing environment due to excess domestic flight capacity. 

Without a cash lifeline, its operations could grind to a halt, leaving shareholders with little to no recovery. In such scenarios, equity holders are often wiped out entirely. 

In short, the risk of total capital loss looms large, making a swift exit from Spirit Airlines stock a rational move for investors. 

Why Cash Infusion Wouldn’t Be a Positive for Spirit Airlines Stock

Even if Spirit Airlines manages to raise fresh capital, the terms are unlikely to favor its existing shareholders.

Given the company’s fragile balance sheet and continued losses, any new financing through stock offerings or high-cost debt will come at a deep discount, meaning significant dilution for current investors.  

Therefore, a cash infusion might buy time, but it wouldn’t solve the underlying cost and demand-related issues. Simply put, even a successful raise may not be sufficient to justify holding Spirit Airlines stock here. 

Finally, FLYY shares do not receive limited coverage from Wall Street analysts, which may also be a huge red flag for serious investors.