By Youssef Yahya 
Spirit Airlines has announced a voluntary prearranged Chapter 11 bankruptcy filing, aiming to restructure its financial liabilities. The airline reassured passengers that operations would continue as usual, with the restructuring process expected to conclude by Q1 2025.
The restructuring plan includes a significant liquidity boost of over $1.3 billion through a prearranged agreement with a “supermajority” of its loyalty and convertible bondholders. This support highlights confidence in Spirit Airlines’ long-term strategy.
The Financial Details of the Restructuring
The $1.3 billion liquidity improvement will be divided as follows:
- Equity Investment: $350 million from existing bondholders.
- Debt Equitization: Conversion of $795 million of funded debt into equity.
- Debtor-in-Possession Financing: $300 million provided by bondholders.
By the end of Q2 2024, Spirit Airlines had $845.3 million in cash and equivalents, with shareholders’ equity valued at $809.6 million. These resources, combined with operational cash flow, are expected to sustain the airline throughout the restructuring process.
Ted Christie, President and CEO of Spirit Airlines, expressed optimism about the restructuring plan. He stated that the agreement reflects confidence in Spirit’s long-term vision and its efforts to enhance customer experience. Christie emphasized the airline’s commitment to providing more flexible and valuable travel options for its passengers.
Spirit Airlines anticipates being delisted from the New York Stock Exchange (NYSE) due to the Chapter 11 proceedings. While the stock will still trade over-the-counter, these shares are expected to hold no value in the restructuring process. Year-to-date, the airline’s stock has lost 93.41% of its value, closing at $1.08 on November 15, 2024.
Low-Cost Carrier Challenges
The announcement comes amid widespread challenges for low-cost carriers in the U.S. United Airlines’ CEO Scott Kirby has criticized the low-cost carrier model as unsustainable. The sentiment is echoed by United’s CCO Andrew Nocella, who noted that nearly 10% of domestic capacity is “severely unprofitable.”
Despite these industry-wide challenges, Spirit Airlines has attempted to diversify its offerings. In July 2024, the airline introduced premium travel options under the branding “Go Big,” “Go Comfy,” “Go Savvy,” and “Go,” to attract higher-yielding traffic. According to Christie, these innovations will allow Spirit to remain competitive without compromising its cost advantage.
Operational Setbacks: Grounded Aircraft and Engine Issues
Spirit Airlines has faced operational disruptions due to the grounding of its Airbus A320neo and A321neo aircraft powered by Pratt & Whitney PW1100G engines. By mid-2024, 12.5% of the airline’s fleet was grounded. Pratt & Whitney provided $93.9 million in credits to Spirit Airlines to mitigate the impact, and an additional agreement with International Aero Engines (IAE) improved the carrier’s liquidity by up to $200 million.
Spirit Airlines vs. Competitors
While Spirit Airlines remains committed to its low-cost model, other U.S. carriers like Frontier Airlines and JetBlue have also introduced premium options to attract a broader customer base. Despite reports of potential mergers, recent discussions between Spirit and Frontier Airlines fell through.
Read also: US Federal Judge Blocks JetBlue and Spirit Merger
Assurance for Passengers
Spirit Airlines has reassured passengers that the restructuring will not disrupt operations. The airline remains committed to enhancing its travel experience, making it clear that all bookings, flights, and operations will proceed without interruption.
A Look at Industry Precedents
Spirit Airlines is not alone in navigating Chapter 11 bankruptcy. U.S. carriers like American Airlines have successfully restructured under similar conditions, with American emerging stronger after merging with US Airways. International airlines like Aeromexico, Avianca, LATAM Airlines, and SAS have also emerged from Chapter 11 proceedings in recent years. Brazil-based GOL Linhas Aéreas is undergoing a similar process, expecting to conclude in 2025.
Do you believe Spirit Airlines can thrive independently after emerging from Chapter 11 bankruptcy?
Sources
- Simple Flying
- Featured image by Alan Wilson
Youssef Yahya is the CEO and Founder of Aviation for Aviators, a platform dedicated to the aviation industry. With over 3 years of experience as an aviation writer, Youssef is passionate about sharing his insights on aviation, entrepreneurship, and the broader business landscape. As a Teaching Assistant in Entrepreneurship at Nile University, he also nurtures the next generation of entrepreneurs. When he’s not exploring the skies or business ventures, you can find him saying, ‘Drag your coffee, and let’s talk aviation, entrepreneurship, and football.’
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Mohammed Rizwan