Despite repeated reassurances that Spirit Airlines (SAVE) would be able to recover from rising debt and a blocked acquisition by JetBlue Airways (JBLU) , the airline is now talking to bondholders about a restructuring plan in which a Chapter 11 filing is a possibility.
The news, initially broken by The Wall Street Journal late on Oct. 3, sent shares of the low-cost carrier tumbling more than 40% in after-hours trading to $1.36. At last check Friday the stock was trading at $1.53, off 32% from the Thursday regular-session close at $2.24. The Thursday close reflected an 86% drop this year.
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“The Spirit team is 100% clear and focused on the adjustments we are currently deploying and will continue to make throughout 2024 to drive us back to cash flow generation and profitability,” Spirit CEO Ted Christie had said shortly after the JetBlue merger was blocked in January 2024.
Spirit Air hobbled by engine recall, rivalry
The airline has been hit hard by a recall of Pratt & Whitney engines, which forced it to put off flights like a much-awaited route to Tulum, Mexico, as well as increased competition for domestic routes from other airlines. Its debt burden is currently at $3.3 billion.
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People with knowledge of the talks told the WSJ that bankruptcy is one option Spirit is considering, but a filing would not happen immediately if that path was chosen. Most immediately $1.1 billion of secured notes must be extended or refinanced by Oct. 21.
In response to the news, Christie said the airline’s leadership was focused on figuring out “the best outcome for the business as quickly as possible” regarding debt deadlines coming up in 2025 and 2026. He declined to “speculate on potential outcomes.”
TD Cowen analyst Helane Becker in January 2024 was first to say that there are “limited scenarios that enable Spirit to restructure.”
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Spirit’s efforts to bring in profit
The discussions are reportedly focused on gauging bondholder and creditor support for a potential bankruptcy.
As part of its efforts to bring in profit, Spirit has done everything from reducing flight service by as much as 30% to reworking its booking system to include four classes and more premium options.
But in August it posted an 11th consecutive quarterly loss, $150 million on $1.2 billion in revenue, and continues to struggle to craft a turnaround plan.
JetBlue’s proposed $3.8 billion acquisition of Spirit was blocked by a federal judge over antitrust concerns.
“What we’ve seen over time is that less people are actually flying on Spirit,” Chief Commercial Officer Matt Klein said during a CBS interview in July 2024.
At the same time, the airline was still focused on its profit-seeking mission by launching new flights and, according to Christie’s statement on the bankruptcy potential, “elevating guest experience.”
The other option being explored is an out-of-court agreement with creditors.
