A US bankruptcy court has confirmed that Spirit Airlines will be emerging from Chapter 11 bankruptcy proceedings in the coming weeks. After financial struggles and failed merger attempts, a take-private deal is set to secure the airline’s future.
The ultra-low-cost carrier filed for bankruptcy in the United States Bankruptcy Court for the Southern District of New York last November, in a strategic move to restructure its $1.6 billion debt and ensure the airline’s long-term survival. Over the past few months, various rescue options have been considered. Earlier this month, Spirit Airlines rejected the latest merger proposal from Frontier Airlines, which could have potentially stabilised the airline.
Spirit Airlines IP Holding Company Files Chapter 11 Alongside Parent
— RK | Consultants (@_RKConsultants) November 26, 2024
BANKRUPTCY FILING ALERT 🚨
Spirit IP Cayman Ltd.
Chapter 11 – Southern District of New York
Filed: 11/26/2024
Case No. 24-12040
📊 Assets: $500M-$1B | Liabilities: $1B-$10B | Total Creditors: 25,001-50,000 |… pic.twitter.com/Bbw8pqCRlT
Now, a restructuring plan has been approved by Judge Sean Lane, despite initial challenges from the Department of Justice’s bankruptcy watchdog, the United States Trustee Program (USTP), and the Securities and Exchange Commission (SEC).
Takeover by bondholders
Under the approved plan, control of the airline will be transferred to top bondholders in a take-private deal, including Citadel Advisors, Pacific Investment Management Co., and Western Asset Management Co., according to court documents. The deal is also backed by Spirit’s lenders, who will take ownership of the company as it exits Chapter 11.
Additionally, the plan includes several key financial measures:
- Existing equity shares will be voided.
- $795 million of debt will be converted into equity.
- $350 million will be raised through new equity shares.
- A new $300 million revolving credit facility will be introduced.
- $840 million of new senior secured debt will be issued to existing bondholders.
Spirit Airlines’ new strategy
“We will emerge as a stronger airline with the financial flexibility to continue providing Guests with enhanced travel experiences and greater value”, said Ted Christie, Spirit’s President and Chief Executive Officer.
Spirit Airlines is also set to evolve in the way it operates, including increasing less-than-daily routes, removing unproductive markets and reducing capacity during off-peak periods. In order to cut costs, there will also be a reduction in fleet size and some lay-offs.
In a memo to employees, Christie confirmed that around 200 staff members would be laid off as part of cost-cutting measures. “As we move forward, our leadership team remains focused on reducing costs while also advancing our strategic initiatives to transform our Guest experience and position Spirit for success”.
Spirit Airlines is also set to introduce several enhancements to its customer experience, aligning with post-pandemic industry trends. These include a new premium economy product, upgraded seating options, free WiFi, and complimentary refreshments, all of which will soon be available to travellers.
