FLORIDA- Spirit Airlines (NK) is negotiating with bondholders about potential bankruptcy (Chapter 11) filing terms. The budget carrier explores restructuring options following its failed merger with JetBlue Airways Corporation (B6).
In January 2024, A federal judge halted JetBlue Airways’ acquisition of Spirit Airlines, ruling that the $3.8 billion merger would negatively impact market competition.
Spirit Airlines Bankruptcy Talks
Spirit considers a Chapter 11 filing amid significant financial challenges. The airline also investigates out-of-court balance sheet restructuring.
Recent discussions have primarily focused on securing bondholder and creditor support for a bankruptcy filing, according to The Wall Street Journal.
The airline faces pressure from a $3.3 billion debt load, including over $1.1 billion in secured bonds maturing within a year. Spirit must refinance or extend these notes by October 21, as per its credit card processor’s deadline.
CEO Ted Christie confirmed ongoing discussions with bondholders’ advisers to address these maturities in August.
Spirit’s financial struggles stem from its inability to turn an annual profit since before the COVID-19 pandemic. The airline plans to reduce capacity by nearly 20% in the fourth quarter, shrinking its operational footprint.
Compounding these issues, Spirit has been impacted by the recall of Pratt & Whitney engines, grounding part of its fleet and leading to pilot furloughs.
Failed Merger Creating Problems
The failed $3.8 billion merger, intended to create a formidable low-fare competitor, has left Spirit struggling financially.
JetBlue, meanwhile, pursues a turnaround strategy, benefiting from increased air travel demand and lower fuel costs. Analysts have upgraded JetBlue’s stock, projecting a strong liquidity position by 2026.
Spirit encountered regulatory challenges, including a temporary block on a rule requiring upfront fee disclosure. This legal development briefly boosted Spirit’s stock in July.
Spirit Airlines’ stock closed at $2.24 on Thursday, down 3.45%. After-hours trading saw a 30.38% plummet to $1.56. Year-to-date, Spirit has fallen 86.30%.
JetBlue Airways ended at $6.39, down 2.74%, but rose 4.85% in after-hours trading. JetBlue has gained 21.25% year-to-date.
Spirit has sought alternative profitability measures. In August, the airline announced plans to introduce bundled fares and premium seating with blocked middle seats. But still struggles to maintain its routes and keep it planes airborne.
Also Read, Frontier vs Spirit: Which low-cost Airline is Best?
CEO Earlier Rejected Bankruptcy Talks
Spirit Airlines is implementing aggressive network cuts to address financial challenges. Aviation analytics firm Cirium reports that Spirit reduced its scheduled seats by approximately 18% between August and September, significantly shrinking its operational footprint.
The discount carrier has further trimmed its October schedule by 10% compared to the previous year. This reduction has led to a decrease in Spirit’s share of US domestic passenger capacity, now standing at 4.95% for the year.
Despite these measures, Spirit’s CEO Ted Christie rejected bankruptcy speculation during a February investor call. Christie dismissed such narratives as misguided, emphasizing the airline’s focus on operational adjustments throughout 2024 to restore cash flow generation and profitability.
Spirit’s fleet composition adds complexity to its operational challenges. Cirium’s data indicates that Spirit operates 94 aircraft equipped with GTF engines.
Currently, 21 A320neo-family jets are listed as “in storage,” meaning they have not been operational for over 30 days. However, this grounding may not be solely due to engine issues.
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