Spirit Airlines prepares for bankruptcy – sparking fears of mass route cancellations across America
Spirit Airlines is preparing to file for bankruptcy protection after merger talks with Frontier Airlines fell through, a report says.
After the news broke at 5.30pm, the share price slumped 40 percent in seconds, wiping hundreds of millions of dollars off the value of the low cost carrier.
The Florida-based airline is in final negotiations with bondholders on a restructuring plan to secure the support of key creditors, the Wall Street Journal reported this evening.
The airline could move forward with its bankruptcy filing within the next few weeks, sources familiar with the matter told the WSJ.
It is expected Spirit will file for Chapter 11 bankruptcy, which allows it to keep operating as it bids to cut its debts. That could mean savage cuts to routes and staff numbers. And if it cannot cut costs enough, it would have to shutter completely.
Spirit Airlines is reportedly planning to file for bankruptcy following its failed merger with JetBlue
Spirit Airlines did not immediately respond to a request for comment.
The carrier has been losing money despite strong travel demand.
A chunk of its huge $3.3billion debt is due soon – including more than $1.1billion of secured bonds that are due in less than a year.
It had faced an October 21 deadline from its credit card processor to refinance or extend those notes.
Last month, Spirit said it would furlough about 330 pilots on January 31 as part of its efforts to cut costs and shore up its finances.
It has failed to report a profit in the last five out of six quarters, raising doubts about its ability to manage looming debt maturities.
Spirit has been struggling with losses and declining revenue since the pandemic. In fact, while it may have made profits some quarters, it has not turned an annual profit since even before the 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.
Frontier Airlines and Spirit Airlines first planned to merge in 2022, but JetBlue Airways swooped in with a higher bid. That won over Spirit’s shareholders.
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 a judge agreed.
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
The judge ruled in January that the merged company would harm travelers who rely on Spirit’s low fares and said it would reduce competition.
As a result, JetBlue pulled out of a merger agreement.
Spirit was in talks with Frontier again in October as it hoped to revive merger discussions. But Frontier walked away.
Since the start of the year, its shares were down more than 86 percent.
