Dive Brief:
- Spirit Airlines filed for Chapter 11 bankruptcy on Monday in a prearranged transaction supported by a supermajority of its bondholders, who will make a $350 million equity investment in the company. Spirit said it expects to emerge from a “streamlined” reorganization process by April 2025.
- Spirit’s filing lists Wilmington Trust as the largest creditor, with $500 million in convertible unsecured notes due in 2026. The U.S. government is the carrier’s second-largest creditor, with a $136 million unsecured term loan from the Treasury Department.
- The bankruptcy comes 10 months after a federal judge in Massachusetts blocked Spirit’s proposed $3.8 billion sale to JetBlue Airways on grounds that it would reduce low-price competition for air travel and violate the Clayton Act.
Dive Insight:
Along with the bondholders’ investment, the restructuring deal calls for Spirit to “equitize” $795 million of its funded debt, the company said in a statement accompanying the Chapter 11 filing in the Southern District of New York U.S. Bankruptcy Court.
Beyond their equity investment, Spirit’s existing bondholders also agreed to provide $300 million in debtor-in-possession financing to help the airline carry on normal business through its court-overseen restructuring.
“I am pleased we have reached an agreement with a supermajority of both our loyalty and convertible bondholders on a comprehensive recapitalization,” Spirit Chief Executive Officer Ted Christie said in the statement, calling it “a strong vote of confidence in Spirit and our long-term plan.”
The demise of Spirit’s sale followed a federal bench trial in Boston late last year in which the Justice Department, six states and the District of Columbia had sued. The government argued that the deal would lessen competition by eliminating one of the industry’s lowest-priced airlines.
Spirit and JetBlue “presented no evidence that Spirit was in such a dire financial situation that it had no hope for the future; instead, multiple Spirit executives testified that the airline had a plan to return to profitability,” District Judge William Young wrote in his Jan. 16 opinion.
Young applied his ruling narrowly, affecting only the terms of the proposed July 2022 JetBlue-Spirit merger agreement, meaning any future proposed combination involving Spirit would not be automatically enjoined.
Spirit took pains to stress Monday that its schedule and operations won’t be affected by the bankruptcy, and released an “open letter” to customers. The court filing comes less than two weeks before U.S. airlines enter their busy holiday travel period, through Jan. 5.
“The most important thing to know is that you can continue to book and fly now and in the future,” the company said.
Spirit, which is based in Dania Beach, Florida, had spent weeks negotiating with holders of its senior secured notes, which pay 8%, and were due in September 2025, and convertible senior notes due in 2026. Spirit had about $3.3 billion in long-term debt, including $1.27 billion that was due in 2025.
During a February earnings call shortly after the court decision, Christie sharply criticized the DOJ’s antitrust suit and the widespread speculation that the company would need to seek bankruptcy protection.
Spirit has struggled to return to profitability after the COVID-19 pandemic as larger competitors siphoned some of its traffic with lower “basic economy” fares; its labor costs rose closer to those of its industry rivals; and it was forced to ground part of its Airbus fleet due to engine-manufacturing problems requiring repairs.
The last large U.S. airline bankruptcy case concluded in December 2013, when a bankruptcy judge approved a settlement with U.S. regulators allowing American Airlines and US Airways to merge. The Justice Department and several states had sought to block that merger during American’s Chapter 11 restructuring.
