I guess we’re used to taxpayer dollars just being lit on fire, but this is next level.
Trump reportedly plans rescue deal for Spirit Airlines
The Wall Street Journal reports that the Trump administration is nearing a deal to rescue Spirit Airlines, which is on the verge of liquidation. Spirit had proposed this concept, but it’s wild that this is even being considered.
Under the agreement that’s reportedly being discussed, the government would loan the airline as much as $500 million, and in return, it would receive warrants to take a potential significant stake in the airline.
Let me of course emphasize that this is according to people familiar with the matter, and it remains to be seen what comes of this. However, this concept is supported by comments that Trump made just a couple of days ago, where he said “I don’t mind mergers,” and “I think I’d love somebody to buy Spirit, as an example.” Trump even suggested that “maybe the federal government should help that one out.”
This investment would help keep Spirit in business, as the airline is currently in Chapter 11 bankruptcy for the second time in two years. When the airline emerged from bankruptcy the first time, it only addressed its debt situation, though it did nothing to help with the carrier’s horrible operating margins.
Now in the second round of Chapter 11 bankruptcy, the carrier’s turnaround plan is essentially to shrink into profitability. But even without the recent hike in jet fuel prices, it’s highly questionable how successful that strategy would be. Not only has Spirit not turned a profit since before the pandemic, but the airline has the worst margins in the industry.
This is a terrible idea, and sets an awful precedent
It’s really unfortunate to see the tough financial spot Spirit Airlines is in, and the airline industry in the United States has evolved in such a way that it’s really hard for the smaller carriers to compete. Obviously the current jet fuel situation only makes matters worse.
That being said, no matter how you slice it, this simply sets an awful precedent, and makes no sense:
- Why should Spirit get support from the government, but not all the other airlines in the country that are struggling? What about Frontier, JetBlue, etc.?
- If the government takes a stake in one airline, doesn’t that create a conflict of interest, in competing with airlines that the government doesn’t have a stake in?
- We have to be honest, giving Spirit another $500 million just pushes the inevitable down the road by a few months, as the carrier still isn’t turning an operating profit, even before the spike in jet fuel prices
I get that a president might not like the optics of a “value” airline liquidating while they’re in office, but Spirit’s problems go back to long before the current problems. Trump has already been vocal in blaming Spirit’s issues on Biden, given that JetBlue’s takeover of Spirit was ultimately blocked on anti-trust grounds (as I’ve always said, I strongly disagreed with the Biden administration’s stance there).
But folks, this is just a really bad idea. Regardless of political affiliation, I have a hard time imagining that any OMAAT reader will find this to be a good idea? If you do, please sound off in the comments, and let us know what you think the limits of government ownership of airlines should be. Should the government just invest in all airlines?
If you ask me, this signals one other thing — if there is any interest in merger activity that isn’t between airlines of the “big four,” I think this is about as clear of an indication as we could get that something wouldn’t face too much regulatory scrutiny.
Bottom line
The Trump administration is reportedly nearing an up to $500 million lifeline for Spirit Airlines, which matches comments previously made by Trump, about how he’d like to save the airline. This would reportedly come in the form of a loan, and in return, the airline would receive warrants to take a take in the airline. This is such a bad idea on so many levels… let’s see how this plays out.
What do you make of taxpayers funding Spirit’s continued operations?
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