Spirit Airlines announced on Monday that it has filed for bankruptcy protection and plans to restructure amidst challenges from the pandemic-induced travel decline, increased competition from larger airlines, and an unsuccessful attempt to merge with JetBlue.
The airline has filed for Chapter 11 bankruptcy after negotiating terms with its bondholders. The airline has suffered losses exceeding $2.5 billion since 2020 and faces debt repayments of over $1 billion due in 2025 and 2026.
The airline assured that it will continue normal operations during the bankruptcy proceedings. Spirit informed its customers that they can still book flights and use frequent-flyer points as usual, and it will maintain payments to employees and suppliers.
Spirit announced that it secured commitments for a $350 million equity investment from current bondholders and will convert $795 million of their debt into equity in the restructured company. Additionally, the bondholders will provide a $300 million loan, which, along with Spirit’s remaining cash reserves, will support the airline through its restructuring process.
Shares of Spirit, headquartered in Miramar, Florida, fell by 25% on Friday following a Wall Street Journal report that the airline was in discussions with bondholders about a potential bankruptcy filing. The company missed the deadline for its third-quarter financial report but indicated that its operating margin would reflect a larger loss compared to the same period last year.
These developments are part of a series of setbacks that have caused Spirit’s stock to plummet by 97% since late 2018 when the airline was still profitable.
CEO Ted Christie confirmed in August that Spirit was negotiating with bondholders’ advisors regarding the impending debt maturities. He emphasised that these discussions were a priority and that the airline was striving to secure the best possible deal promptly.
Despite the financial woes, passengers are still flying with Spirit Airlines, albeit at lower fares. In the first half of this year, Spirit saw a 2% increase in passenger numbers compared to the same period last year. However, passengers are paying 10% less per mile, and revenue per mile from fares has decreased by nearly 20%, contributing to Spirit’s financial losses.
In an unprecedented move, Spirit plans to reduce its flight schedule by nearly 20% from October to December compared to the same period last year. Analysts believe this will help stabilise fares, but it may benefit competitors more than Spirit itself. Analysts from Deutsche Bank and Raymond James suggest that Frontier, JetBlue, and Southwest will gain the most from Spirit’s reduced schedule due to their overlapping routes.
Spirit has also been dealing with mandatory repairs to Pratt & Whitney engines, leading to the grounding of dozens of its Airbus jets. The airline has cited this issue as a reason for furloughing pilots.
Frances Ibiefo
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