Spirit Airlines is considering filing for bankruptcy 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 anonymous sources familiar with the matter. Spirit has been exploring multiple options, including a sale or out-of-court transaction, as well as a possible Chapter 11 filing. Reaching an agreement with bondholders and other creditors on a restructuring could support the airline’s bankruptcy case, which has been the focus of the most recent discussions.
It should be noted that nothing happens immediately. While the timing of a potential bankruptcy filing was unclear, it is not imminent, according to the Journal’s sources.
The report specified that the bankruptcy would focus on restructuring the airline through a possible Chapter 11 process, suggesting that liquidation (a possibility some industry analysts flagged earlier this year) was not under consideration. .
“We recognize this sounds alarmist and harsh, but the reality is that we believe there are limited scenarios that allow Spirit to restructure,” TD Cowen 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 spokesperson pointed to CEO Ted Christie’s comments during the airline’s second-quarter earnings conference call in August.
“Before we get into the results, I want to note that we are engaged in productive conversations with our bondholders’ advisors to address upcoming debt maturities. Because those conversations are ongoing, we will not go into details or answer questions. “It goes without saying that it is a priority and we are focused on ensuring the best outcome for the business as quickly as possible, while staying focused on driving performance and implementing our new travel options and elevated guest experience.”
Spirit has been unable to become profitable since the start of the pandemic in 2020, and has racked up $3.3 billion in debt, some of which is due soon, including $1.1 billion in bonds.
U.S. airlines have become more reliant on premium income since the pandemic began, while legacy airlines have also learned to master the concept of “core economics,” somewhat neutralizing the competitive advantage previously enjoyed by legacy airlines. ultra low cost like Spirit.
Spirit has also been especially hard hit by a problem with certain Pratt & Whitney engines, which has forced it to ground parts of its fleet over the past year.
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The airline has tried to stem losses by reducing its operating footprint, as well as changing the structure of its fare product and introducing several tiers of premium seating options.
An acquisition appeared to be the best path forward for the airline and possibly its only option to avoid a restructuring. During a month-long antitrust trial in Boston that closed in December last yearSpirit CEO Ted Christie and others testified that because of changes in the market, Spirit could not continue operating in its current form as an ultra-low-cost airline.
Meanwhile, JetBlue argued that by absorbing Spirit, it could double its size and compete more effectively with the four major U.S. airlines (American Airlines, Delta Air Lines, Southwest Airlines and United Airlines) that together control about 80% of the American air travel. market.
The merger, which would have seen JetBlue acquire Spirit and absorb its assets under its own brand, was finally blocked.
However, in a call with investors in late February, Christie rejected the possibility of bankruptcy or dissolution.
“This misguided narrative has been put forward by a variety of experts,” Christie said at the start of the airline’s fourth-quarter earnings conference call on Feb. 8, during which Spirit reported a $184 million loss for the year. period. “However, in the real world, we focus on the facts.”
“You can rest assured that the Spirit team is 100% clear and focused on the adjustments we are currently making and will continue to make throughout 2024 to get us back to cash flow generation and profitability,” Christie added. .
