Spirit Airlines, the USA’s largest low-fare carrier, announced today (November 18) that it has voluntarily filed for Chapter 11 bankruptcy protection in the US Bankruptcy Court. The move comes as the airline seeks to restructure its balance sheet and reduce debt through stock conversion.
Despite the filing, Spirit claimed that vendors, aircraft lessors, and employees will be paid as usual and will not be negatively impacted by the restructuring. However, the company anticipates being delisted from the New York Stock Exchange, with its common stock expected to be cancelled and rendered valueless.
Spirit insisted that passengers will not experience any disruptions to their travel plans. Flights, ticket sales, reservations, and loyalty programmes will continue to operate as usual. The airline said it has sufficient liquidity throughout the restructuring process and has secured commitments for US$350 million in equity investments and $300 million in debtor-in-possession financing from existing bondholders.
“This is a proactive step to solidify Spirit’s financial foundation and position us for long-term success,” said Ted Christie, Spirit’s President and CEO. He highlighted the restructuring’s goal to accelerate investments in enhancing the customer experience and delivering greater value.
The restructuring plan, supported by a supermajority of Spirit’s bondholders, involves converting $795 million of its debt into stock in the company. This means it will issue shares of the company to creditors, reducing its overall debt and making it easier for it to manage its finances. The company expects to emerge from the Chapter 11 process in the first quarter of 2025.
Like many airlines, Spirit was hit hard by the pandemic, but while higher-end air travel has rebounded, its no-frills offering has struggled to regain customers. This is partly due to other airlines, including larger carriers, offering cheaper fares, making it harder for Spirit to attract budget-conscious travellers. Other factors include spiralling fuel and labour costs.
Adding to its woes, Spirit recently attempted to merge with two other airlines, but both deals fell through, creating further financial uncertainty.
Frontier was outbid by JetBlue, but a legal ruling blocked the merger on the grounds that it would drive up Spirit’s prices, depriving customers reliant on low fares of its services.
However, Spirit’s relatively young fleet makes it an attractive prospect, and analysts believe a takeover may still be on the cards if the debt restructuring proves successful.
As part of its drive to win back passengers, this summer saw the carrier shift from its rock-bottom offering to selling bundled fares with options such as a larger seat, priority boarding, a luggage allowance, onboard WiFi, and free snacks and drinks.
An Airbus A319 in Spirit Airlines livery.
