Spirit Airlines Files Chapter 11 Bankruptcy, Continues Flying
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?