Several weeks ago, there were reports that Spirit Airlines was considering a bankruptcy filing. There was temporarily some hope, as the airline reportedly revived merger talks with Frontier Airlines. However, those talks were called off last week.
There’s now a major update, as the airline has just announced that it intends to file for Chapter 11 bankruptcy protection.
In this post:
Spirit Airlines plans Chapter 11 restruturing
Spirit Airlines has announced that it’s filing for Chapter 11 bankruptcy protection, following its failed merger attempt with JetBlue, plus merger talks with Frontier not going anywhere.
The airline is entering into a restructuring support agreement (RSA) supported by a supermajority of the company’s bondholders. The restructuring is expected to reduce Spirit’s debt, provide increased financial flexibility, position Spirit for long-term success, and accelerate investments to provide guests with “enhanced travel experiences and greater value.”
Spirit has received backstopped commitments for a $350 million equity investment from existing bondholders, and will complete a deleveraging transition to equitize $795 million of funded debt. Bondholders are also providing $300 million in debtor-in-possession financing, which is expected to support the company throughout the process.
Spirit expects to continue operating its business in the normal course throughout this process. Passengers can continue to book and fly with the airline, and use all tickets, credits, and loyalty points, as normal. Employees will continue to be paid as usual, and vendors, aircraft lessors, and holders of secured aircraft indebtedness, will also continue to be paid in the ordinary course.
Here’s how Spirit CEO Ted Christie describes this development:
“I am pleased we have reached an agreement with a supermajority of both our loyalty and convertible bondholders on a comprehensive recapitalization of the Company, which is a strong vote of confidence in Spirit and our long-term plan. This set of transactions will materially strengthen our balance sheet and position Spirit for the future while we continue executing on our strategic initiatives to transform our Guest experience, providing new enhanced travel options, greater value and increased flexibility. I’m extremely proud of the Spirit team’s hard work and dedication, which is key to our sustained progress in advancing our business and delivering for our Guests.”
As you can see, the carrier’s plan is to continue operating, though it remains to be seen what exactly that will look like. It’s hard to run a profitable airline, and as much as competition is good, one wonders how the small players are supposed to be profitable without consolidation. Even if Spirit has less debt, how exactly is the carrier supposed to return to profitability?
You can’t help but feel bad for Spirit Airlines…
This entire situation is just unfortunate. As a reminder, in mid-2022, plans were announced for JetBlue to acquire Spirit, in a $3.8 billion deal. The idea was that this would make JetBlue a stronger competitor to the “big four” US carriers, and personally, I think it would’ve been good for consumers, assuming the combined airline could find a viable path forward.
The Department of Justice (DOJ) ended up suing to block the merger, and after a lengthy court battle, a judge ruled in favor of the DOJ. The problem was, Spirit’s business model was no longer working, due to how demand has evolved in the United States post-pandemic.
The airlines that are actually profitable are making most of their profits from their loyalty programs, from premium demand, and from long haul demand, and that’s not something an ultra low cost carrier can tap into in the same way. Even the profitable airlines are complaining of overcapacity in the domestic market, though I think the logic there is questionable.
Some ultra low cost carriers have now completely evolved their business models, as we’ve seen Spirit introduce fare classes in line with the legacy airlines, while even scrapping change fees.
I continue to believe the merger being blocked was a huge failure on the DOJ’s part, at least in terms of looking out for the best interest of consumers. Now Spirit has changed its initial business model anyway, and the carrier’s future is in limbo.
Bottom line
Spirit Airlines is starting its Chapter 11 bankruptcy filing, as the company has come to a restructuring agreement with bondholders. Spirit has struggled to make money post-pandemic, due to how trends have shifted, plus management obviously losing focus on the core business for the 18-month period where the merger was moving forward.
It’s really unfortunate that this is the situation that the carrier is in. And it’s even wilder to think that Spirit being acquired by another airline was blocked by the government, in order to preserve ultra low cost competition.
What do you make of Spirit’s financial situation?
Jan 3 or April 3 i give them personally. End of the fourth quarter end of the first quarter. If weather doesn’t play havoc on their operations, another company might seriously kick the tires after the New Year, but until then the Holiday’s are over, the gamble is really not worth the trouble. The more likely scenario is; how are the other airlines seeking to capitalize on a failure and squeeze out extra capacity from...
Jan 3 or April 3 i give them personally. End of the fourth quarter end of the first quarter. If weather doesn’t play havoc on their operations, another company might seriously kick the tires after the New Year, but until then the Holiday’s are over, the gamble is really not worth the trouble. The more likely scenario is; how are the other airlines seeking to capitalize on a failure and squeeze out extra capacity from their existing fleet if it does. One dangling carrot in the short term may be ACMI carriers having quick access to leased planes for transporting the illegals imported into this country exported back out. As always, the fatter cats with the parachutes, the litigation types, the government and ad media bureaucracy, and wheeler and dealers, on Wall Street all stand to gain pieces, while the frontline on Main Street are left to pick up the pieces of their time investment towards this career endeavor which has the potential of unraveling quickly. Best of luck to those affected. Now is the time to do some deep thinking and reflections going forward.
This is the big question how does Spirit plan to return to profitability? The business model of money losing fares trying to make it up in ancillary fees does not work. Can Spirit become more of a legacy while maintaining the perception of a low cost airline?
Also, will concessions be asked of workers? That could get very messy particularly with pilots.
they have already told their employees that they expect to shrink.
Normally, shrinking to profitability doesn't work but it usually does when you are in bankruptcy where you can get rid of costs.
remember that the entire US legacy airline industry including their prem-merger partners except for AS has been though chapter 11.
The airline industry has learned alot about how to successfully restructure.
I think NK will come out just fine.
They've already announced some new network strategy points.
Your header says "Spirit Airlines plans Chapter 11 restruturing". This should say "restructuring".
A merger with B6 would have been a long term disaster with an eventual Chapter 11 filing of its own. The DOJ cost B6 $400M in breakup and other fees, but I think it came out ahead in the long run.
It appears the creditors are very generous with NK, but that does not make the airline automatically profitable. The legacy carriers can duplicate the Bare Fares with the click of a mouse and...
A merger with B6 would have been a long term disaster with an eventual Chapter 11 filing of its own. The DOJ cost B6 $400M in breakup and other fees, but I think it came out ahead in the long run.
It appears the creditors are very generous with NK, but that does not make the airline automatically profitable. The legacy carriers can duplicate the Bare Fares with the click of a mouse and a few lines of code and siphon off customers who appreciate frequency and reliability.
This is a coming to Jesus moment, and NK can't fumble the ball if it wants to survive as an independent. Prior bad habits need to be amended. Town Hall meetings are needed to spread the new gospel.
In a year or two, we'll see if the creditors are throwing good money after bad money.
NK has been working with these creditors for months to convince them to agree to a prepackaged chapter 11 filing -and that most certainly includes presentation of a business plan.
I am sure the creditors have pressure tested every assumption that NK mgmt included in their plan - as they should.
Wonder if Frontier is thinking they can pick up the assets for cheaper when the airline actually folds.
If Spirit actually “folds” why would Frontier have any better call on the assets than the rest of the competition?
Sounds like an airliners.net whiz kid... this belief that when an airline goes bankrupt or shuts down that things like gates at airports are "auctioned off," showing no understanding of concepts of how real estate and leases work.
DOJ definitely made the right call. Besides, at no time in post-DeReg history has merging two struggling carriers, ever created a strong single one.
This is terribly unfortunate and I do wish NK and its employees the best; the fact that they have agreement w/ a supermajority of their creditors should expedite the process much more so than previous airline bankruptcies.
Let's not forget that NK originally wanted to merge w/ F9 and it was only when B6 tried to outbid F9 that the DOJ had reason to see that consumers could do better with a ULCC-ULCC type merger...
This is terribly unfortunate and I do wish NK and its employees the best; the fact that they have agreement w/ a supermajority of their creditors should expedite the process much more so than previous airline bankruptcies.
Let's not forget that NK originally wanted to merge w/ F9 and it was only when B6 tried to outbid F9 that the DOJ had reason to see that consumers could do better with a ULCC-ULCC type merger instead of the proposal that B6 had.
The real question of the next few years is what happens to B6.
NK is likely to come out ok and merge w/ F9 as originally planned.
I think they have a good chance of coming out of this in 6 months.
But I think that afterward, if merging with Frontier, Spirit would be the stronger partner.