Report: Spirit Airlines Planning Chapter 11 Bankruptcy Filing

Report: Spirit Airlines Planning Chapter 11 Bankruptcy Filing

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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. It’s now being reported that those talks are off, and that can mean only one thing.

Spirit Airlines moving toward bankruptcy filing

The Wall Street Journal is reporting that Spirit Airlines is preparing for a Chapter 11 bankruptcy filing, following its failed merger attempt with JetBlue, plus merger talks with Frontier not going anywhere.

According to the report, the carrier is in advanced discussions with bondholders to figure out the bankruptcy plan that would have support from a majority of creditors, as the airline struggles with huge losses and looming debt maturities. This filing could come within weeks.

It’s worth emphasizing that even if Spirit were to reorganize in bankruptcy protection, that wouldn’t mean that the airline would cease operations. Quite to the contrary, the idea would be to maintain operations while restructuring debt, and figuring out a viable path forward.

Now, it’s anyone’s guess what that path forward looks 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.

Spirit is planning a bankruptcy filing

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.

Spirit has been in trouble since the start of the pandemic

Bottom line

It’s being reported that Spirit Airlines is planning a Chapter 11 bankruptcy filing, as the company is in discussions with bondholders over the best path forward. For some time there was a glimmer of hope, as discussions had resumed with Frontier over a possible merger, but those are now off.

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.

At this point it seems like a Chapter 11 bankruptcy filing is the best path forward for Spirit. I just hope the airline is able to reorganize in a way that preserves jobs and capacity as much as possible.

What do you make of Spirit’s financial situation?

Conversations (17)
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  1. Retired Gambler Guest

    Thank you Brandon! Can’t wait until Jan 20 when the anti business sentiment of this administration goes away. Should challenge every merger or file anti trust charges against our leading technology companies. Things will be so much better under the new administration

  2. DesertGhost Guest

    If one believes Doug Parker, there are many advantages to doing mergers during Chapter 11 bankruptcy. Bill Franke, Indigo Partner's Chairman, hired Parker at America West. Maybe Parker picked up that idea from Franke.

  3. KP Member

    Hopefully JetBlue and Spirit will re-attempt the merger after the administration changes in January, though the chances of that happening are pretty low.

  4. JJ Guest

    Their exit or restructuring will definitely impact the whole industry and consumer prices. I'm seeing very increased fares on a lot of domestic routes in the next couple of months. I was looking at Feb/Mar Houston to Chicago and almost the entire calendar was $397+ (Looking this morning it has come down, but the skys ahead are gray for consumers overall).

  5. Dan Guest

    Congrats Lina Khan you did a phenomenal job at saving this company

  6. George Romey Guest

    Airlines are no stranger to Chapter 11. Spirit will most likely emerge from Chapter 11 but might well be back into bankruptcy again within 2-3 years. Some wild cards are 1. Will labor be forced to take a haircut and where does that lead the process? 2. Will creditors get a bid for assets of the airline that would prove more valuable selling the airline piece meal rather than emerge from bankruptcy as a standalone...

    Airlines are no stranger to Chapter 11. Spirit will most likely emerge from Chapter 11 but might well be back into bankruptcy again within 2-3 years. Some wild cards are 1. Will labor be forced to take a haircut and where does that lead the process? 2. Will creditors get a bid for assets of the airline that would prove more valuable selling the airline piece meal rather than emerge from bankruptcy as a standalone operation? 3. How any economic changes impact air travel either positively or negatively?

    Of course the core issue is that the ULCC business model isn't all that viable over the long term and can Spirit re-invent the airline into something of a more LCC?

    And BTW none of the major legacies will ever be allowed to liquidate. Under any administration the government will become the lender of last resort.

  7. Paper Boarding Pass Guest

    As I have stated in prior postings, Chapter 11 is the friend of airlines. Most every major carrier (except WN) have visited Chapter 11 to mitigate the ominous burden of debt. TWA had the distinction of three visits (Chapter 33).
    The greatest assets are the NEO jets & corresponding flight crews; and any North East airport slots. Trump doesn’t take office till January, so may prolong the bankruptcy seeking a favorable DOT & JOJ...

    As I have stated in prior postings, Chapter 11 is the friend of airlines. Most every major carrier (except WN) have visited Chapter 11 to mitigate the ominous burden of debt. TWA had the distinction of three visits (Chapter 33).
    The greatest assets are the NEO jets & corresponding flight crews; and any North East airport slots. Trump doesn’t take office till January, so may prolong the bankruptcy seeking a favorable DOT & JOJ judgement for a merger. Who will be the dance partner is much up in the air!!

    1. quorumcall Diamond

      Yeah, since 2000 basically every major carrier -- UA, AA, DL, and the former US from 2002-2003 -- have been through Chapter 11 and made it out just fine. Spirit has strong odds of doing so as well, even if they don't merge with another carrier

  8. The Hon Tim Dunn Guest

    Can’t wait for the day Delta files for Chapter 7

    1. DesertGhost Guest

      With all due respect, I often criticize Tim Dunn (if that's really his/her name) for his (her?) burning desire to see American and other Delta competitors liquidated. I don't want to see any business liquidated. I'm not into schadenfreude (i.e., deriving pleasure from others' suffering).

    2. Arps Member

      Liquidation is a consequence of unprofitability. By liquidating and reallocating people's jobs and capital to more profitable ventures, that is a relief of suffering.

  9. FYI Guest

    Frontier dodged a bullet. Why would you want JetBlue taking over a failing business? If anything Spirit could have dragged the two down together.

  10. Arps Member

    I will celebrate the day AA files for chapter 7.

    1. PM Guest

      Looks like you won’t be celebrating in your life time. There is a 0% chance that happens. Odds are with the new admin a new NEA similar to the AA/AS gets set up with B6 potentially joining OW or a B6/AA Merger which would take some serious finesse and cuts. Chapter 11 to shed some debt maybe but never chapter 7.

    2. DesertGhost Guest

      Why do you want thousands of hard working people to lose their jobs?

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The comments on this page have not been provided, reviewed, approved or otherwise endorsed by any advertiser, and it is not an advertiser's responsibility to ensure posts and/or questions are answered.

The Hon Tim Dunn Guest

Can’t wait for the day Delta files for Chapter 7

2
Arps Member

lol at this armchair expert in M&A

2
Arps Member

I will celebrate the day AA files for chapter 7.

1
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