FLORIDA- Rumors of Spirit Airlines (NK) filing for Chapter 11 bankruptcy protection intensified Friday following reports of the company’s ongoing financial challenges.
The low-cost carrier faces a looming $1 billion payment next year, primarily allocated for new aircraft acquisitions.
Spirit Airlines Bankruptcy Rumors
Spirit CEO Ted Christie addressed the situation in August, stating, “We are engaged in productive conversations with the advisors of our bondholders to address the upcoming debt maturities.”
Christie emphasized the company’s focus on securing the best outcome for the business while implementing new travel options and enhancing guest experiences.
The airline currently grapples with $3.3 billion in debt. While this figure isn’t unusual in the airline industry, Spirit’s inability to turn a profit since the onset of the pandemic raises significant concerns. This financial strain has made the carrier an attractive target for potential mergers, as evidenced by the bidding war between Frontier and JetBlue Airways in 2022.
Spirit’s appeal lies in its substantial fleet of over 100 aircraft, one of the youngest in the world. This asset becomes particularly valuable in the current aviation landscape, where access to operational narrowbody aircraft is limited due to Boeing’s 737-MAX program issues and engine problems with new Airbus A320s.
Spirit Airlines stock plummeted 37% Friday, hitting an all-time low following reports of potential bankruptcy discussions.
The ultra-low-cost carrier’s shares, which have declined over 85% year-to-date, traded at $1.67 by afternoon, down 25%. Conversely, competitor Frontier Airlines saw a 21% surge in its stock price.
Which Legacy Carriers can Benefit?
Florida-based carrier faces potential bankruptcy as negotiations with creditors and bondholders continue. If these talks fail and the company enters bankruptcy proceedings, significant industry shifts may occur, reported Kyle Stewart, author at Live and Let’s Fly.
United Airlines (UA) and other legacy carriers could quickly acquire Spirit’s assets, including airport gates and its A320 fleet. Delta Air Lines (DL), known for purchasing distressed assets late in their lifecycle, might adapt its strategy to acquire newer assets from Spirit.
In a liquidation scenario, United and Delta could divide Spirit’s 94 A320NEOs. Both airlines aim to acquire A321NEOs due to ongoing delays with Boeing’s MAX10. Delta now expects no MAX10 deliveries before 2027. Spirit’s older A320CEOs and A319CEOs would likely be dismantled for parts.
American Airlines (AA), burdened with significant debt, may not participate in asset acquisition. United Airlines, however, possesses cash reserves and financing options. United, disadvantaged by delayed narrowbody deliveries, could leverage Spirit’s current fleet and negotiate with Airbus for future deliveries.
Southwest Airlines (WN), traditionally a Boeing operator, seems unlikely to acquire an all-Airbus fleet. However, the carrier’s recent strategic shifts suggest all options remain open as it aims to strengthen its position and appease activist investors.
Alaska Airlines (AS), having recently acquired Hawaiian Airlines (HA), would likely face regulatory challenges in pursuing Spirit’s assets. Although Alaska previously operated A320s from its Virgin America acquisition, it has since phased them out and sold them to American Airlines.
What about JetBlue and Frontier?
Spirit Airlines faces a critical financial juncture following the collapse of its merger deal with JetBlue Airways (B6). The failed merger, blocked by Judge William Young’s ruling, has accelerated Spirit’s financial decline and raised questions about the airline’s future.
Judge Young’s decision, aimed at preserving low-cost flight options for working-class travelers, may inadvertently lead to the loss of these very services. Critics argue the ruling should have included provisions to support Spirit’s continued operations despite financial losses.
Frontier Airlines (F9) emerges as a potential suitor for Spirit. Spirit’s reduced valuation, coupled with its attractive fleet and ultra-low-cost carrier (ULCC) model, aligns with Frontier’s business strategy. A Frontier acquisition could provide access to Spirit’s assets and workforce at reduced rates.
Frontier faces its own challenges, including revenue declines and increased labor costs as post-pandemic travel patterns normalize. The recent uncontested Alaska-Hawaiian merger suggests regulatory bodies may be open to airline consolidations under certain circumstances.
However, Frontier must consider the Department of Justice’s (DOJ) stance that Spirit’s unique market position makes it irreplaceable. Another merger attempt could prove costly and face regulatory hurdles.
Conversely, the potential loss of Spirit might prompt the DOJ to reconsider its position, potentially clearing the path for a merger between similar ULCC competitors.
Spirit’s management is actively cutting costs and exploring options to avoid bankruptcy. However, consolidation with another carrier may offer the best chance for Spirit’s survival. The airline industry now awaits government and market responses to Spirit’s predicament.
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