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Writer's pictureGeorge Nicon Andritsakis

Fall From Grace: Spirit Airlines files for Chapter 11 Bankruptcy

The news today out of Wall Street and Ft. Lauderdale is that Ultra Low-Cost Carrier Spirit Airlines has filed for Chapter 11 bankruptcy protection, in order to keep flying and restructure its finances after significant losses due to two failed merger proposals, aircraft grounding issues, and debt maturities just over the horizon.


The airline has already worked out a pre-arranged deal with a supermajority of its bondholders to recapitalize and restructure the debt load, all the while continuing operations, and retooling the airline from the Ultra Low-Cost model to one more structured for higher fares, stronger yields, and, hopefully, better load factors.


The Passenger Side


Chapter 11 filings have become part and parcel of the airline landscape since the industry was deregulated in 1978. Almost every major airline flying in the United States right now has done the trip through the bankruptcy court at one time or another, save for Southwest Airlines. Passengers don't have much to fear about flying Spirit during the restructuring process, and the airline has gone on record to say the following:


* Tickets, Credits, and Loyalty Points are still being earned and used as normal.

* the airline's Free Spirit loyalty program and credit cards are still in operation.

* all flights are still operating and offered for booking as normal.


The RSA itself


The Restructuring Support Agreement (the "RSA") that Spirit has agreed to with its bondholders will eventually, and hopefully, lead to an intensive restructuring of the airline's balance sheet going forward. The airline says the RSA is designed to reduce the debt, provide increased financial flexibility and liquidity, and position the carrier for longer-term success while keeping the perceived value and travel experience for the traveling public.


The RSA includes backstopped commitments from existing bondholders to the tune of $350 million, which should equitize around $795 million of the current debt. To get these commitments taken care of, the airline agreed to file for Chapter 11 protection, as well as get an additional $300 million of debtor-in-possession ("DIP") financing, which along with the income provided by ongoing operations and the cash on hand, should see the company through the entire restructuring process.


On Wall Street, mainly due to the filing and RSA, the airline's stock will be delisted and all outstanding shares will be canceled and have no value going forward, which is par for the course in bankruptcy proceedings (lord knows I've lost tons of shares when TWA, ATA, America West and Frontier Airlines all filed at their respective times).


The Employee/Vendor Side


The beleaguered airline went on record today and said the bankruptcy process will not affect the wages or benefits of the employees still working, and its external vendors and aircraft lessors will continue to be paid as normal. This is quite interesting to me, this might be the first time I have heard of an airline in bankruptcy protection NOT going after labor or lessors and vendors for concessions. If that's the case, then kudos to Spirit's management for sticking to their guns and keeping the workforce out of harm's way. In the past, almost every bankruptcy done by an airline has involved massive pay cuts, layoffs, and wipeouts of deals with lessors and other vendors. Not even Delta's bankruptcy in 2005 kept the employees safe from pay and benefit cuts, or even layoffs. I hope Spirit keeps this promise, it will be a first for the industry.


The Travel Genius' Take


Upheavals in my beloved airline industry are nothing new to me, lord knows I've been through a handful of them myself, including bankruptcies, mergers, pandemics, etc. This bankruptcy strikes me as a little different than the usual proceedings of the past. While this is nowhere the disaster of the first airline bankruptcy in the post de-regulation era (Braniff International in 1982, where the airline just shutdown and everyone from passengers and employees were stranded where they were, while all the aircraft flew out and came back to Dallas and parked willy nilly around their terminal), or the bloody affair the bankruptcies of Continental Airlines in 1983 (shutdown and slow, rolling restart 3 days later) or Eastern Air Lines in 1989 (with eventual, and needed shutdown in 1991) were. Even bankruptcies in the 2000's of United, Delta, and American Airlines had long-lasting and negative repercussions on their respective workforces and public perception. Spirit's filing today is more of them restructuring the debt that's coming due in the short term, as well as selling off a good chunk of their older aircraft. They've already deferred delivery of new aircraft off by at least a year or two, and retooling the way they do business on the soft product side of things, as Frontier Airlines did earlier this year.


Spirit filing for bankruptcy and their relatively rapid exit predicted for the first quarter of 2025 will be one of the fastest restructuring efforts undertaken in this industry by an airline that size. I'll be keeping an eye on the proceedings, and wish the carrier and its workforce best wishes. Now maybe Spirit can stop trying to merge with others and go back to being its own free and independent airline that does what it does best for an airline based out of Florida, haul people to and from leisure destinations without connecting through fortress hubs or paying an arm and a leg for the privilege. For what it is, Spirit does a good job, as long as you don't set your bar too high and expect Emirates-level service for your $39 fare.


I do find it ironic this filing happened just days after the passing of Ben Baldanza, the mind behind Spirit's original turnaround into the ULCC model a decade and a half ago. He was a true innovator and disruptor here on the US airline scene, and he will be missed. He made Spirit from another 90's fly-by-night into the low-fare leisure carrier it became, and led it to open up the skies to the ultra-low fare crowds looking to get away on the dirt cheap.




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