Spirit Airlines announced today that it has submitted filing for Chapter 11 Bankruptcy and debt restructuring and will continue flying and selling tickets.
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Chapter 11 Bankruptcy
Spirit announced early this morning, Monday Nov. 18, 2024, it has filed for Chapter 11 Bankruptcy protection pursuing restructuring of debt agreements with stakeholders.
“[S]upported by a supermajority of Spirit’s loyalty and convertible bondholders on the terms of a comprehensive balance sheet restructuring. The restructuring is expected to reduce Spirit’s debt, provide increased financial flexibility, position Spirit for long-term success and accelerate investments providing Guests with enhanced travel experiences and greater value.
In connection with the RSA, Spirit has received backstopped commitments for a $350 million equity investment from existing bondholders and will complete a deleveraging transaction to equitize $795 million of funded debt. To implement the RSA, the Company has commenced a prearranged chapter 11 process in the United States Bankruptcy Court for the Southern District of New York (the “Court”). Existing bondholders are also providing $300 million in debtor-in-possession (“DIP”) financing, which, together with Spirit’s available cash reserves and cash provided by operations, is expected to further support the Company through the chapter 11 process.” – Spirit Airlines
Chapter 11 Bankruptcy is essentially a pause for debtors while a Restructuring Agreement (RSA) can re-order the company’s finances and is different from Chapter 7 which requires the shut down of the business.
Trading of the company’s stock has been halted at $1.11/share amid the news. It is expected the stock will be delisted at some point but will likely trade under a different symbol just as American switched to AMR in its filing.
What This Means For Flyers
Everything operates as normal for flyers for now and into the future.
“Guests can continue to book and fly without interruption and can use all tickets, credits and loyalty points as normal.” – Spirit Airlines
This is a normal operation in the United States and seemingly every network carrier files for bankruptcy protection at some point. United Airlines filed in 2002, US Airways filed twice, the second time while it was already in bankruptcy and purchased America West, Delta in 2005 – the same day as Northwest with whom it then merged; American Airlines in 2011.
Flyers that book with Spirit are protected and flights will operate as they have in the past, staff will be paid and so will its vendors. Nothing changes for travelers.
The DOJ Has Left A Mangled Mess Beyond Spirit
The Department of Justice sued to block JetBlue’s acquisition of Spirit which would have created the fourth largest airline in the United States. It would have provided JetBlue the ability to better compete with network carriers and offered an alternative to the network carrier model.
In normal circumstances, when an airline opts to acquire or merge, the DOJ lays out conditions for approval. It may mean that international landing slots at restricted airports (like London Heathrow) must be sold or gates reduced at US airports. In the latest uncontested merger with Alaska-Hawaiian involved conditions that frequencies between Hawaiian islands not be reduced from current levels and that frequent flyer protections are put in place for travelers.
When the DOJ sued to block JetBlue Airways’s acquisition and offered no conditions the two carriers could meet to align with the regulator’s expectations. JetBlue offered to reduce impact on key airports as well and still the DOJ fought an all-or-nothing campaign and won defeating the $3.8 billion tie-up.
If anything, Spirit and JetBlue both should have played from a position of protecting consumers and jobs for travelers on the two airlines both of whom were less strong than they projected in those court proceedings.
The DOJ played favorites in this and the ensuing Alaska-Hawaiian merger. The DOJ sued JetBlue to remove a prior approved agreement to codeshare with American Airlines, then blocked this tie-up but allowed Alaska-Hawaiian to proceed mostly unabated. What the DOJ did was muddle its position on mergers and acquisitions and Alaska took a big gamble that it would be able to get approval though it apparently gambled correctly.
The Market Needs Spirit
Its position was that Spirit holds a unique market position that would harm consumers if it were to be consumed by JetBlue, and that a US market without Spirit would leave travelers without affordable options.
How does that position look now?
While a Spirit bankruptcy doesn’t mean the death of the airline – far from it – it makes raising money and continuing to offer low cost tickets an awfully difficult matter. How is this a better result than a stronger JetBlue?
The truth is that the market needs Spirit because it operates a unique model different from fellow ULCC, Frontier Airlines. Frontier and Allegiant fly irregular schedules, Frontier operating a semi-network model through its Denver hub and Allegiant focusing on secondary airports from smaller markets like Grand Island, Nebraska to Phoenix/Mesa.
Where Spirit was different is that its schedules tended to be more regular than 1x, 2x, 3x weekly flights and they fly from major market to major market. When Spirit flies from Pittsburgh to Newark, that puts pressure on United and gives flyers options that aren’t United Airlines. My concern with the proposed Frontier merger is that the country needs more Spirit and less Frontier but that was unlikely to happen.
If Spirit is unique and needed so badly it can’t be merged or acquired, then perhaps the DOJ will carve a path to keep them in the air travel market for the United States throughout this bankruptcy process and after it emerges.
Ultimately, the reason the airline failed was that its low fare model didn’t earn enough to pay for its brand new fleet. Had it used older aircraft that were cheaper to acquire (but less efficient and requiring more maintenance) it may never have found itself in this position.
Conclusion
Spirit Airlines files for bankruptcy protection and nothing changes for flyers but the DOJ changed the market. Whether the new Trump administration that prior approved JetBlue’s NEA soon back in office will allow or encourage Spirit to join a larger carrier remains to be seen but I suspect it will. Time will tell.
What do you think?
As I’ve stated before, Chapter 11 is the friend of the airlines. Most every major airline has tapped on the courthouse door at one time or another.
This give NK time to negotiate with the creditors, aircraft leasing agents, airports, etc. However, no guarantee it will survive and Chapter 7 (liquidation) maybe the next step. The biggest assets are the NEO jets, airport slots, and any spare parts inventory. The airline has already furloughed hundreds of pilots, so it’s in a shrink wrap phase!!
If the other airlines has any brains (which I sometimes wonder about), they have already developed contingency plans, possible bid proposals, and identified significant assets for the pickings.
This story will appear several more times, but by Spring, we should get a clear verdict on their status.
@Paper Boarding Pass – Funny that United just leased those 41 Airbus jets, might have been able to buy these for a song… or was that aphorism better used on Delta?
“The Market Needs Spirit”
One could argue you and Matt need them more for the clickbait stories they create for you so easily.
Others could argue we need them to keep certain individuals that can’t behave themselves off other airlines we fly.
I question if the other airlines even care because in most cases they don’t try to compete on price with Spirit even if you believe they keep rates lower.
As covered numerous times before, more incidents happen on the other carriers than Spirit and if Spirit isn’t around any more there will be some passengers who elect not to travel at all but for the most part they will be absorbed by the other carriers. Because Spirit predominately flies to major market airports unlike the other ULCCs, Spirit passengers that still travel even if the airline were to cease operating would spill to network carriers which all compete on a Basic Economy fare basis. The only airline that will be unlikely to absorb Spirit clients will be Southwest who does not offer a competing Basic Economy option and is typically more expensive than network carriers.
Your perceptions don’t match the data.
Last week was my first time voting Republican. If the Trump administration start green lighting big airlines coming up NEA type schemes (like they did the last time) and buying up ULCCs so that airfares could rise, it will be my last time voting republican.
Lmao.
Consequences
Oh, if only it had been Chapter 7. I would be celebrating the end of MAGA Ghetto Airlines like crazy. Although not as much as I’d be celebrating the ends of B6 or DL.
Ben Baldanza never provided an answer to how an airline stays profitable with aging planes,a toxic work environment where staff is constantly abused and the reality the economy cannot sustain multiple airlines. Even McDonald’s raised meal prices to the point grocery stores are growing the food take out market share. At what point the corporate board is held fully accountable for failed strategies.
In trying to preserve low pricing…the federal judge who deepsixed the JB Spirit merger…made things even worse for competitive pricing
Every year an elderly friend tells me her daughter & grandkids wish to visit around Christmas (on her dime) that her daughter suggests is about $600 each. And every year I send back a screen shot of Spirit prices, which have been significantly less. Today I found spirit prices maybe 30% higher than last year. I have never flown spirit but I can say if you want something for free it’s unrealistic to be choosy. Anyway spirit prices were much higher this rodeo.
Nice to see the CEO got a $3.8 MILLION “retention bonus” The week before chapter 11. That earns the cockles of my heart-NOT!! It’s a disgrace!!
The guy that was in charge of driving The company into this mess gets rewarded. Like the head coach and GM of the NY Jets getting their contracts extended at better pay for being shit for four years!!