Spirit Airlines considers bankruptcy filing, WSJ reports

Spirit Airlines is considering filing for bankruptcy protection amid mounting financial losses following its failed merger with JetBlue, according to a report from The Wall Street Journal.

The airline is in discussions with creditors about restructuring the company, the Journal reported, citing multiple unnamed sources familiar with the matter. Spirit has been exploring multiple options, including an out-of-court sale or transaction, as well as a possible Chapter 11 filing. Agreeing with bondholders and other creditors on a restructuring could support the airline's bankruptcy case, which has been the focus of the most recent discussions.

Notably, nothing is happening right away. While the timing of a potential bankruptcy filing was not clear, it is not imminent, according to the Journal's sources.

The report specified that the bankruptcy would focus on restructuring the airline through a possible Chapter 11 process, suggesting that liquidation — a possibility that some industry analysts noted earlier this year — was not under consideration.

"We recognize this sounds alarmist and harsh, but the reality is we believe there are limited scenarios that enable Spirit to restructure," TD Cowen's Helane Becker wrote in a research note in January after the airline's merger with JetBlue was blocked.

When reached for comment on Thursday, a Spirit spokesperson pointed to remarks from CEO Ted Christie during the airline's second-quarter earnings call in August.

"Before we get into the results, I want to note that we are engaged in productive conversations with the advisors of our bondholders to address the upcoming debt maturities. Because those conversations are ongoing, we are not going to go into detail or take any questions on this topic or speculate on potential outcomes. Needless to say, it is a priority, and we are focused on securing the best outcome for the business as quickly as possible, while staying focused on driving performance and implementing our new travel options and elevated guest experience."

Spirit has found itself unable to become profitable since the onset of the pandemic in 2020, and has racked up $3.3 billion in debt, some of which comes due soon, including $1.1 billion in bonds.

U.S. airlines have become more reliant on premium revenue since the pandemic began, while traditional carriers also have learned to master the "basic economy" concept, somewhat neutralizing the competitive advantage that ultra-low-cost airlines like Spirit previously enjoyed.

Spirit has also been hit particularly hard by an issue with certain Pratt & Whitney engines, which has forced it to ground parts of its fleet throughout the past year.

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The airline has tried to stem the losses by shrinking its operational footprint, as well as changing its fare product structure and introducing several tiers of premium seating options.

Route map changes: Spirit Airlines cuts 32 routes in latest network shake-up

An acquisition seemed to be the airline's best path forward, and possibly its only option to avoid a restructuring. During a month-long antitrust trial in Boston that closed in December of last year, Spirit CEO Ted Christie and others testified that due to the changing market, Spirit could not continue operating in its current form as an ultra-low-cost carrier.

JetBlue, meanwhile, argued that by absorbing Spirit, it could double its size and compete more effectively with the four major U.S. airlines — American Airlines, Delta Air Lines, Southwest Airlines and United Airlines — that together control about 80% of the U.S. air travel market.

The merger, which would have seen JetBlue acquire Spirit and absorb its assets under its own brand, was ultimately blocked.

On a call with investors in late February, however, Christie rejected the possibility of a bankruptcy or dissolution.

"This misguided narrative has been advanced by an assortment of pundits," Christie said at the top of the airline's fourth-quarter earnings call on Feb. 8, during which Spirit reported a loss of $184 million for the period. "However, back in the real world, we are focused on facts."

"You can rest assured that 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," Christie added.