Nobody should be surprised to hear that Spirit has once again filed for Chapter 11 bankruptcy protection — unless the surprise was that it wasn’t a Chapter 7 liquidation. The fact that it happened just a few months after exiting Chapter 11 protection under a completely impossible plan is absolutely damning of the team that brought them out last time. Now, I can only wonder if there will be an exit at all this time around.
This time, Spirit is effectively saying “oops. We didn’t do enough last time, but this time we totally will.” The first half of that statement is certainly true. It came out having reduced some debt but mostly just pushing due dates down the road. To get that, however, it had to take on a higher interest rate and the payments started piling up. Meanwhile, the commercial model was falling apart, and the airline shed $250 million in Q2 alone, leaving it with very little cash on hand.
So, in the last couple weeks, Spirit has tried to shore up its finances. The airline signed an extension with its credit card processor to ensure it could keep operating past the end of the year, and it had to pay dearly for that. But it also pulled down its entire remaining revolving line of credit to put more cushion in the bank. With that level of cash, Spirit decided it had enough to file for bankruptcy protection and keep operating without requiring debtor-in-possession financing from the outside. That’s good, because it doesn’t have any.
To get out of bankruptcy, it will need money from elsewhere. And that’s why it says in the release… “The Company is also working productively with its secured noteholders, including with respect to potential financing that may become necessary later in the proceedings.”
What’s interesting is that it didn’t file for bankruptcy protection on its own volition, it seems. Instead, it looks like the lessor AerCap may have pushed it over the edge. In an 8-K, Spirit explains two problems with AerCap. The first was the big issue, and it is pretty remarkable.
Spirit had an order for 36 airplanes, but it conducted a sale-leaseback where AerCap would take over the orders and Spirit would lease them when they were delivered in 2027-2028. On August 25, AerCap says that Spirit was in default, and AerCap was terminating the leases. Spirit would then be on the hook for paying $2.1 million per airplane that was not yet delivered. Spirit says it disagrees that it was in default, but going into bankruptcy protection will give time to sort that out. This is all for airplanes that have not even been delivered from Airbus. That’s wild.
Spirit also said separately that AerCap issued a default notice for 37 airplanes that were already placed with the airline, but it doesn’t sound like any action had been taken on that. This shouldn’t have been a triggering event, but it will be something that needs to get sorted.
So, now back in the comfy womb of bankruptcy protection, Spirit says it has a four-part plan. What’s coming?
Redesign its network
Wait, didn’t Spirit already say it did that? Well, it is now reversing course again. After going more toward sub-daily flying, it is now coming back to more frequency again. The plan is apparently to “provide more destinations, frequencies and enhanced connectivity in its focus cities.” It will reduce flying elsewhere.
I have no idea what it considers to be its focus cities, but here are all the stations that averaged more than 15 daily departures this year:
Spirit 2025 Scheduled Departures by Largest Stations
Data via Cirium
We know Spirit will be fighting for Fort Lauderdale, Orlando, Las Vegas, and Detroit. At least, that’s what I’d assume. But what else counts as a focus city remains to be seen, as does what this will even look like.
Optimize its fleet size
This should really say “shrink its fleet size.” Spirit certainly seems poised to reject leases and reduce the number of aircraft on property as part of this process. As we know, shrinking to profitability always works. (end sarcasm)
Address its cost structure
It is true that costs have been ballooning in recent months, but this one is very light on details. It just says that Spirit will be “pursuing further efficiencies across the business.” When you shrink, that makes it harder to actually pull down your unit costs, so I can’t wait to see how this plan unfolds.
Effectively compete and meet evolving consumer preferences with its three travel options – Spirit First, Premium Economy and Value
Is this not what they’ve been trying to do the whole time over there? This is not a bankruptcy plan. This is a commercial plan that it has so far failed to implement successfully. I’m not sure what bankruptcy is going to change.
You can’t be surprised to hear that at first blush this does not have me feeling optimistic. Spirit has already badly burned those who helped it exit bankruptcy in the first place earlier this year. It has said that the new shares that were just issued upon bankruptcy exit will be worthless and have no place in the new, new company. Who is going to give this airline the money it needs to exit?
I don’t see why the lessors would bother. They can place these airplanes pretty easily with other carriers in the current market. It would probably work out better for them to do so in the end. I’m sure there is some private equity option that might sniff around, but it’s a risky investment that is not going to come cheap.
Perhaps the best shot would be to raise money by merging with another airline. Money loves mergers, and I’m sure they could get what they needed. After all, Spirit should have accepted Frontier’s merger offers over the last few years at least 158,412 times. At this point, with Spirit on the ropes, however, would any airline care? Or would airlines be better off just waiting for Spirit to fail and then pick at the carcass?
Frontier has always had an interest at the right price. I just assume that “the right price” just keeps getting lower and lower. It might like to pick up all that gate space in Fort Lauderdale and perhaps some airplanes. But an integration takes a long time, is complex, and is distracting. It may no longer be worth it.
Maybe if the price gets low enough, United might find a way to pull the trigger to get itself a South Florida hub. But it would have to be pretty cheap for United to be willing to take on the rest of that company. It may really just depend on how feasible United thinks it would be to do that on its own if Spirit dies.
There is nothing certain about this process. Maybe Spirit will find the money to exit again on its own. Maybe it will need to find a merger partner to raise the money. Or perhaps it will just convert this to a Chapter 7 proceeding and disappear.
