It has been a remarkably busy week in Spirit’s bankruptcy case, and the headline really is that Spirit is making big changes that could, possibly, result in an airline that could find its way out of bankruptcy protection. Until this week, I thought the chances were slim to none, but now Spirit will get rid of more than half of its airplanes. And more changes are happening.
The most pressing issue in the short-term was finding some sort of Debtor-in-Possession (DIP) financing to keep the business running while it reorganized. It had stuffed itself full of as much cash as it could before filing, but it knew it would need more. And in the last week, it got some.
The airline announced it that it had raised up to $475 million from existing bondholders. The hearing happens this Friday, October 10, and if approved, Spirit will have $200 million made available immediately. And it really needs it. After all, in this announcement it also said, “As part of its motion for the use of cash collateral, the Company obtained immediate interim access to $120 million of liquidity.” That suggests it needed money very fast.
How did Spirit get so much money? That’s a great question. I guess some of these bondholders are happy to throw good money after bad. Or maybe there’s something going on behind the scenes that really bolsters confidence.
The bulk of the infusion it’ll get this Friday is thanks to aircraft lessor AerCap. You may recall that AerCap is the one that pushed the airline into bankruptcy in the first place by claiming the airline had defaulted on the terms of the leases. And since AerCap is the airline’s largest lessor, this was no small problem.
Now, AerCap will fork over $150 million once the approval comes through. It has also agreed to let Spirit out of 27 of the 37 leases it holds. Further, it will let Spirit out of the so-called “Undelivered Leases” which were for 36 airplanes to be delivered in 2027/2028. In exchange, it will get a nice, fat, extremely-specific $635,352,298 unsecured claim in bankruptcy. It also has a new lease for 30 airplanes from Spirit, though the delivery dates aren’t clear. My guess? This will be pushed out further into the future.
From 214 to Less Than 100 Airplanes
Closing DIP financing will be a huge step for the airline, and it will make it that much easier to actually get to the other side of the reorganization process. But now, we’re in the part of the reorg where Spirit has to decide which contracts it wants to assume and which it wants to reject. When it comes to leases, it is rejecting most of them.
In addition to the 27 leases it has rejected with AerCap, it is rejecting another 87 with other lessors. Here is a visualization of what this will look like, give or take a few since interpreting who owns want is not easy when it comes to lessors.
Spirit Fleet Status Post-Bankruptcy
Data via Cirium and Bankrutpcy Filings
Today, Spirit has 214 airplanes in the fleet but 61 of them are stored/parked. I assume most of those are on the ground due to the Pratt & Whitney engine issues, but some may also be not needed or preparing to leave the fleet. Of those 214, 153 are A320ceo/neo aircraft with ~180 seats and the last 61 are A321ceo/neo aircraft with ~230 seats.
Now, the vast majority of the A320s will be gone. It is only assuming seven of the A320neo leases, though it will assume 19 of the A320ceo leases. There are an additional 24 A320ceos that are owned by Spirit with half of them in service today. In the A321 fleet, it’s not as bad. Spirit will only reject 11 of the A321 fleet, all neos. There are 24 ceos that are owned with 7 of them parked.
If this were to hold up as expected, Spirit would be down to a flat 100 airplanes, but even that seems unlikely. There is more to be done here. On the down side, it is doubtful that it will keep every aircraft that it owns flying. In fact, I think that some have already been announced as leaving the fleet, but I can’t find that right now.
On the other hand, it’s possible Spirit is trying to play hardball in bankruptcy and is hoping that someone will come back to the table with a better deal. No matter what, the fleet will be down very significantly.
This week, Spirit filed big cuts for November. It had previously said that capacity would be down 25 percent year-over-year, but it lied. It was actually cut 25 percent week-over-week. As of now, Spirit’s capacity is down a mind-numbing 36 percent vs last year. Just let that sink in.
What’s most interesting here is to see the chart. We did a feature on this in Cranky Network Weekly this week, and this is the chart we used.
As you can see, the off-peak days haven’t changed all that much compared to October, but the peak days? Those have been crushed. Why would you cut back on peak days more? Well, if you figure that airplanes are being utilized today during peak days and are sitting on off-peak, sending all of these airplanes back wwill just means fewer airplanes sit on the ground on off-peak days. But on peak days? They have to cut flights.
With big fleet cuts and DIP financing, this could be a very big week for Spirit. It certainly looks more likely to be able to exit bankruptcy protection if it can get this all approved. It’ll be much smaller, and as we can only assume management hopes, it will be attractive enough for some other airline to buy it.
