Spirit Airlines has filed for bankruptcy protection, marking a significant downturn for the once-thriving budget carrier. The airline, known for its ultra-low-cost fares, has faced mounting challenges including rising operational costs and the fallout from failed merger attempts.
The filing, made in the United States Bankruptcy Court for the Southern District of New York, is a strategic move to restructure its debt and hopefully secure the airline’s future, similarly to how the three largest airlines in the country – American Airlines, United and Delta, emerged stronger after bankruptcy restructuring.
1. Mounting financial losses and failed mergers
Spirit reported substantial operating losses of $360 million in the first half of this year, nearly four times the losses from the same period last year. This comes on the heels of years of losses, as the airline has not managed to make a full-year profit since the Covid-19 pandemic began, decimating travel demand.
Trying to save its operations, Spirit was looking to merge with another carrier. A first attempt was made with Frontier Airlines, also a budget carrier, in 2022, but the latter was outbid by JetBlue. However, this most recent merger, valued at $3.8 billion, was blocked by a Massachusetts judge who argued that it would reduce competition in the market.
Grasping at straws, over the past few months, the airline even chose to delay its aircraft deliveries and furlough pilots. “Deferring these aircraft gives us the opportunity to reset the business and focus on the core airline while we adjust to changes in the competitive environment”, Ted Christie, Spirit’s President and CEO said in April. “In addition, enhancing our liquidity provides us additional financial stability as we position the company for a return to profitability.”
The last push in attempting to recover falling profits was to introduce premium options, introducing a “Go Big” class in August, including a checked-in bag, priority boarding, extra leg room seats, streaming access and food and beverages.
2. Bankruptcy and restructuring plans
Left with no other options, Spirit has filed for bankruptcy protection under the Chapter 11 process while it restructures its finances. The airline has secured backstopped commitments for a $350 million equity investment from existing bondholders and plans to equitize $795 million of funded debt. These measures are designed to reduce the carrier’s debt and increase financial flexibility.
“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”, Christie commented on the restructuring plan.
Despite the bankruptcy filing, Spirit Airlines will continue to operate as usual. The airline has assured that there will be no interruptions to its service, and passengers can continue to book flights and use their tickets, credits and loyalty points without disruption. The carrier also plans to honour all existing agreements with vendors, aircraft lessors and employees during the restructuring process.
Meanwhile, Spirit expects to be delisted from the New York Stock Exchange in the near term, but have its common stock continue to trade in the over-the-counter marketplace through the Chapter 11 process. The shares are expected to be cancelled and have no value as part of the airline’s restructuring.
