In November 2024, Spirit Airlines filed for Chapter 11 bankruptcy protection, after billions of dollars of losses since the start of the pandemic, plus a failed takeover by JetBlue. We knew that the airline was planning on a quick bankruptcy process, and the carrier is now getting ready to emerge from bankruptcy. What I can’t wrap my head around is what the company’s plan is, exactly.
In this post:
Spirit Airlines exiting bankruptcy, being taken private
Bloomberg reports that Spirit Airlines has won court approval to leave bankruptcy via a lender-backed take-private deal. With this, control of the airline will go to a group that includes Citadel Advisors, Pacific Investment Management Co., and Western Asset Management Co.
In recent times, Frontier Airlines tried to make multiple bids to acquire Spirit while in bankruptcy, but that was ultimately rejected, with Spirit claiming it wouldn’t deliver as much value to creditors.
The restructuring deal that has been approved will see the airline cut around $795 million in debt, with bondholders committing to injecting $350 million into the company, via an equity-rights offering. Existing shares of Spirit Airlines stock will be canceled.
But how does Spirit stop losing bundles of money?
While it’s great that Spirit Airlines has had a pretty quick bankruptcy process, I can’t actually wrap my head around what the strategy is here. Spirit Airlines’ problem wasn’t simply that it had a huge amount of debt, but also that the airline has been reporting massive operating losses, and continues to do so.
Recently I posed the question of whether Sprit has an independent future. Spirit’s operating losses are just unbelievably bad. For example, in the first three quarters of 2024, the airline had revenue of $3.7 billion, and operating costs of $4.4 billion. Not only that, but nothing about the airline actually seems to be heading in the right direction. That performance is significantly worse than the same period the year prior, where there was revenue of $4 billion and operating costs of $4.3 billion.
For that matter, for the third quarter of 2024 (year-over-year), Spirit’s yields dropped from 11.23 cents to 10.66 cents, and Spirit’s average revenue per passenger per segment has dropped from $116 to $105. As Spirit has tried to become more “premium” and has eliminated fees, the carrier’s financial performance has only worsened.
Injecting $350 million into the company? Great, Spirit will burn through that in a matter of months just operating flights! I just don’t see any way that Spirit continuing to operate independently will work out, because numbers don’t lie.
The only theory I can come up with is wondering if there’s some play here to first take the company private (as is happening now) and then trying to come to a deal with Frontier, rather than that taking place in bankruptcy? Or is there some play by which the new owners could just try to sell off assets? That’s beyond my area of expertise, but is that what could be going on? At this point, I don’t see any planet on which Spirit has an independent future.
Bottom line
Spirit Airlines is preparing to emerge from bankruptcy, and will be taken private, with several investment firms partnering to own the company.
Given that Spirit’s operating losses have been approaching a billion(ish) dollars per year, and given that the airline isn’t actually improving its financial performance, I’m scratching my head as to what the strategy is here. Injecting $350 million into the company will cover the carrier’s operating losses for several months, maybe.
What do you make of Spirit emerging from bankruptcy, and what do you think the plan is?
Sum of parts assets. B6 F9 other interested gambling parties.
They quietly reinstated some fees and restrictions:
1-Change & cancel fees on Go fare
2-No more buy up from Go to Go Savvy
3-No more checked bag for Go Savvy
Does Spirit actually own any of their aircraft?
Asset sale.
More likely everything together, but in parts wouldn’t shock me.
Agreed. Only logical reason to take it private is to sell all the assets, take a giant loan, setup everything as a lease operation, and sell it to someone who doesn't know what a bad deal they're being handed.
Should Spirit emerge from Chapter 11, the benefits are:
- The balance sheet will look much clearer
- Half the fleet (100+) are NEO jets which have significant value due to delayed deliveries via Boeing & Airbus
- Possession of key airport slots in the north east
- Strong presence in Florida, Vegas, & Texas
Chapter 11 gives Spirit breathing room for a year or two, but it doesn't solve...
Should Spirit emerge from Chapter 11, the benefits are:
- The balance sheet will look much clearer
- Half the fleet (100+) are NEO jets which have significant value due to delayed deliveries via Boeing & Airbus
- Possession of key airport slots in the north east
- Strong presence in Florida, Vegas, & Texas
Chapter 11 gives Spirit breathing room for a year or two, but it doesn't solve all its problems. It needs a dance partner, and soon!
As noted below by George Romey, I too feel a bidding war will develop. However, Spirit will demand one hell of a dowery before entertaining any suitors. Just depends on how deep are their pockets are. The three that would benefit the most would be United, JetBlue, & Frontier.
However, JetBlue doesn't have the money and Frontier is very disciplined in its bidding. United will bid for it has the deepest pockets. To truly leverage the purchase, United would need to complete the integration in 18 months. Any longer, and you are wasting capital and resources. The unions at Spirit have no latitude in this situation. Either accept a new bargaining agreement or a pink slip.
The airline business is very brutal.
I don't see UA going for Spirit, they don't have anything which UA really needs or can't get. Yes, the planes and some slots look enticing however I don't believe that will be enough for UA.
the losses that an airline = or any company - reports in bankruptcy are not at all equivalent to what they will report in regular business operations.
NK might very well be able to operate on a cash neutral operating cost basis.
I'm not saying I am betting on their future, but the financials they have reported so far are not indicative of what they could do if they exited bankruptcy.
and the chances are...
the losses that an airline = or any company - reports in bankruptcy are not at all equivalent to what they will report in regular business operations.
NK might very well be able to operate on a cash neutral operating cost basis.
I'm not saying I am betting on their future, but the financials they have reported so far are not indicative of what they could do if they exited bankruptcy.
and the chances are still that going through a fast chapter 11 was so that investor money could flow into NK, NK would be much more valuable as a merger partner and one of those mergers will happen.
F9 low-balled NK whose rejection was a recognition that NK can make money with much less debt and lower costs, some of which were possible only because of chapter 11.
I think the strategy is to hopefully create a bidding war between Frontier, JetBlue, Southwest or a private equity group with an appetite for high risk. Or management believes the move out of the ULCC category more towards the LCC category will drive enough additional revenue. If neither works then Spirit will go down the same road of all the other legacy names now in a dust bin.
I think the strategy is pretty clear. Break up the company and sell the individual components. The days of Spirit surviving as a stand alone airline are severely limited.