Spirit Airlines is considering filing for bankruptcy protection amid mounting financial losses following its failed merger with JetBlue, according to a Wall Street Journal report.
The airline is in talks with creditors about restructuring the company, the Journal reported, citing multiple unnamed sources familiar with the matter. Spirit has been exploring a number of options, including an out-of-court sale or bankruptcy, as well as a chapter 11 filing. Agreeing with bondholders and other creditors on a reorganization could support the airline’s bankruptcy case, which has been the focus of recent discussions.
Remarkably, nothing happens right away. While the timing of the bankruptcy filing is unclear, it has not yet arrived, according to Journal sources.
The report indicated that the bankruptcy will focus on restructuring the airline through the chapter 11 process, suggesting that liquidation – a possibility that some industry analysts noted earlier this year – was not being considered.
“We realize that this sounds scary and harsh, but the truth is that we believe there are limited circumstances that enable Spirit to restructure,” Cowen TD Helane Becker wrote in a research note in January after the airline’s merger with JetBlue was blocked.
When reached for comment Thursday, a Spirit spokeswoman pointed to CEO Ted Christie’s comments during the airline’s second quarter earnings in August.
“Before we get into the results, I want to note that we are engaged in productive discussions with the advisors of our bondholders to deal with the upcoming debt maturity. Because those discussions are ongoing, we will not come with details or answer questions. in this article or think about the possible results Needless to say, it is a priority , and we’re focused on getting the best business result as quickly as possible, while focusing on driving performance and leveraging our new travel options and a superior guest experience.”
Spirit has been unprofitable since the pandemic began in 2020, and has accumulated $3.3 billion in debt, some of which is due soon, including $1.1 billion.
American airlines have become more dependent on premiums since the pandemic began, and traditional carriers have also learned to understand the concept of “basic economy”, somewhat reducing the competitive advantage enjoyed by low-cost airlines such as Moya in the past.
Spirit has also been hit hard by problems with some Pratt & Whitney engines, forcing it to ground parts of its fleet over the past year.
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The airline has tried to curb losses by reducing its operating space, as well as changing the structure of its fare product and introducing several categories of premium seating options.
An acquisition appeared to be the airline’s best way forward, and possibly its only option to avoid restructuring. During a month-long antitrust trial in Boston that ended in December of last year, Spirit CEO Ted Christie and others testified that because of the changing market, Spirit could not continue to operate in its current form as an ultra-low-cost carrier.
JetBlue, on the other hand, argued that by absorbing Spirit, it could double its size and compete more effectively with the four major US airlines – American Airlines, Delta Air Lines, Southwest Airlines and United Airlines – which it controls. together about 80% of US airlines. the market.
The merger, which would have seen JetBlue acquire Spirit and pull its assets under its brand, was ultimately blocked.
In a call with investors in late February, however, Christie denied the possibility of bankruptcy or liquidation.
“This false narrative has been promoted by many experts,” Christie said on the airline’s fourth-quarter earnings call in Feb. 8, where Spirit reported a loss of $184 million during that period. “However, back in the real world, we focus on the facts.”
“You can be sure that the Spirit team is 100% clear and focused on the fixes we are currently implementing and will continue to do so throughout 2024 to return us to revenue generation and profitability,” Christie added.
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