Spirit Airlines is reportedly in discussions with its bondholders about the terms of a potential bankruptcy filing.
The budget airline is also exploring restructuring its balance sheets through an out-of-court transaction, but people familiar with the discussions told the Wall Street Journal that recent talks have been focused on reaching an agreement with bondholders and other creditors to support a Chapter 11 filing.
The move comes just months after JetBlue pulled out of a merger agreement, but any bankruptcy filings will not be made imminently, the Journal reports.
In the meantime, Spirit continues to struggle with losses and declining revenue amid coming maturities within its $3.3billion debt load – including more than $1.1billion of secured bonds that are due in less than a year.
It also faces an October 21 deadline from its credit card processor to refinance or extend those notes.
Spirit Airlines is reportedly planning to file for bankruptcy following its failed merger with JetBlue
The budget airline has failed to turn a profit since even before the COVID pandemic
CEO Ted Christie previously said in June that the airline was not considering filing for Chapter 11 bankruptcy, instead saying he was ‘encouraged’ by the plan it had in place after the deal with JetBlue fell through.
But in an August earnings call, Christie admitted that the company is engaged in productive conversations with advisors to address the 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,’ he said at the time, according to the Journal.
‘Needless to say, it is a priority and we are focused on securing the best outcome for the business as quickly as possible.’
But Spirit has not turned an annual profit since even before the COVID pandemic.
Then as travelers began to once again take to the skies, many turned to larger airlines, leaving Spirit and other budget airlines struggling to get a foothold in the market.
The budget airline was also among the hardest hit by a recall of Pratt & Whitney-geared turbofan engines, which grounded more than 10 percent of its fleet this year and clipped its growth.
Spirit Airlines CEO Ted Christie previously said in June that the airline was not considering filing for Chapter 11 bankruptcy, instead saying he was ‘encouraged’ by the plan it had in place after the deal with JetBlue fell through
Spirit executives saw the merger with JetBlue as a way to claw back a market share, but the Department of Justice argued that such a deal would violate anti-trust laws, and Boston District Court Judge William Young agreed.
He ruled in January that the merged company would harm travelers who rely on Spirit’s low fares and said it would reduce competition.
‘The proposed acquisition, in this Court’s attempt to predict the future in murky times, does violence to the core principle of antitrust law: to protect the United States’ markets — and its market participants — from anticompetitive harm,’ Young said.
At first, both JetBlue and Spirit argued that they would continue pushing to extend the ‘JetBlue Effect,’ which has historically pressured larger airlines to set more affordable fares.
Executives at the two airlines insisted their combination would benefit customers and boost their ability to compete with dominant US carriers.
But by March, both airlines determined they could not meet the conditions set by the judge to allow the merger to move forward.
Spirit executives saw the merger with JetBlue as a way to claw back a market share, but the Department of Justice argued that such a deal would violate anti-trust laws
In the months since, Spirit has announced it would cut dozens of routes for the busy holiday season, and furloughed 186 pilots as a cost-cutting measure.
It is also now planning to contract its capacity by nearly 20 percent in the fourth quarter of this year from the same period last year, aviation industry analysts from Deutsche Bank announced this week.
Still, Spirit is continuing to struggle, with share prices down more than 30 percent in after-hours trading on Thursday.
Over the past year, its shares were down more than 86 percent.
