Spirit Airlines files for bankruptcy
Spirit Airlines, a pioneer budget airline, has filed for bankruptcy after multiple failed merger attempts with competitors. The company claims to have reached an agreement with most creditors and expects to emerge from bankruptcy next year. Trading in Spirit Airlines shares, which have fallen more than 90% this year, has been suspended.
Details
On Monday, November 18, Spirit Airlines filed for chapter 11 bankruptcy protection, which allows a company to restructure its debts and regain financial stability while shielding it from creditor claims. The airline announced that a majority of creditors had agreed to support it during the bankruptcy process: They will provide a $300 million loan to maintain operations and commit to a $350 million equity investment. Additionally, Spirit plans to swap $795 million in secured debt into equity to reduce its debt burden. It aims to complete bankruptcy proceedings in the first quarter of 2025.
“I am pleased we have reached an agreement with a supermajority of both our loyalty and convertible bondholders on a comprehensive recapitalization of the company, which is a strong vote of confidence in Spirit and our long-term plan,” said CEO Ted Christie.
The airline stated that the bankruptcy would not impact passengers, who will still be able to use all tickets, credits, and loyalty points as normal.
What it means for investors
On Monday, the New York Stock Exchange halted trading in Spirit shares. In its bankruptcy press release, the airline stated that its shares would be delisted from the NYSE and move to the over-the-counter market.
Since the beginning of the year, Spirit stock has lost 93% of its value. The company’s market capitalization as of its last trading session on Friday, November 15, was $118.3 million.
Context
Spirit Airlines was a trailblazer in the ultra-low-cost carrier segment. However, according to the Wall Street Journal, its model of rock-bottom fares proved inadequate for managing its substantial debt. Recently, the company has faced mounting pressure due to increasing competition from major carriers offering low-cost tickets, surging labor expenses, and issues with engines that grounded dozens of its aircraft.
Spirit attempted to address these challenges through mergers with competitors Frontier Airlines and JetBlue, but these efforts failed to produce a deal. Under financial strain, Spirit placed pilots on unpaid leave and sold some aircraft this year, but these measures were insufficient to stave off bankruptcy. The airline is the first major U.S. carrier to file for bankruptcy since 2011.
According to company documents cited by MarketWatch, Spirit’s total debt stands at approximately $3.6 billion. Last week, Fitch downgraded the company’s credit rating to junk status, citing the likelihood of an imminent default.
