A Spirit Airlines plane takes off from Oakland International Airport on May 06, 2024 in Oakland, California.
Brandon Bell | Getty Images
In March, Spirit Airlines got here out of bankruptcy protection in lower than 4 months and entered a worsening landscape. Consumers were holding off booking flights and U.S. planes were awash in empty seats. Even probably the most profitable airlines cut the rosy financial forecasts they’d issued initially of the 12 months.
But Spirit, an airline with vivid yellow planes that has grow to be synonymous with budget travel within the U.S., now appears on even shakier ground. Last week, five months after getting out of bankruptcy, Spirit warned it may not have the ability to survive a 12 months without additional cash and that its bank card processor was searching for more collateral.
On Thursday, Spirit said it borrowed your entire $275 million available under its revolver. It also reached a two-year extension on its bank card processing agreement with U.S. Bank National Association to carry back as much as $3 million a day.
Industry experts said the airline avoided making hard decisions before or during bankruptcy protection, equivalent to renegotiating aircraft leases or shrinking the carrier altogether. As an alternative, the airline in bankruptcy reached a take care of bondholders, who exchanged debt for equity.
“It made it that way more unlikely for them to succeed without having tackled a few of those issues,” said Joe Rohlena, airline analyst at Fitch Rankings, which downgraded Spirit last Friday, saying the corporate is likely to be unable to avoid a default due to its money burn.
Bankruptcy attorney Brett Miller, U.S. co-chair of the restructuring department at Willkie Farr & Gallagher who represented the creditors’ committee, said Spirit “didn’t use the tools available to them in Chapter 11” for larger changes.
Spirit had forecast a net profit of $252 million this 12 months, based on a court filing from December. But its report last week said it as an alternative lost nearly $257 million since March 13, after it exited Chapter 11 through the tip of June.
Shares of Spirit Aviation Holdings have dropped near 58% since its “going concern” warning earlier this month. The stock of other airlines rallied after the cautionary statement. About 10% of Spirit’s seats are on routes with no competition, based on Courtney Miller of Visual Approach Analytics, an aviation research firm.
Signs of strain are showing. Aircraft lessors have reached out to competitor airline executives in recent weeks asking in the event that they would take any of Spirit’s roughly 200 Airbus aircraft, based on people accustomed to the matter.
Aviation analytics firm IBA’s chief economist, Stuart Hatcher, said he would have expected Spirit to be more proactive on coping with aircraft leases during bankruptcy.
“In the event that they’re capable of strip 10% of all of their lease rates, that might have had a big impact on money flow,” he said.
This doesn’t suggest the tip of the road for Spirit.
“There’s quite a lot of incentive to maintain airlines alive because there’s quite a lot of constituencies that might be hurt badly” like employees, consumers and others, said James Sprayregen, vice chairman of economic services company Hilco Global who represented United Airlines and TWA airlines of their respective bankruptcies.
Selling assets
Even before bankruptcy, Spirit had launched into a project to sell more upmarket products like roomier seats or bundled fares that include seat assignments and baggage, to higher compete with larger rivals which have enjoyed a windfall from big-spending customers post-pandemic.
More recently, the carrier has said it’s searching for to sell assets like planes, leases and real estate to boost money. It has also reduced a few of its unprofitable flying and last 12 months had announced job cuts and aircraft sales last 12 months to chop costs and lift money.Â
Spirit CEO Dave Davis told employees in a memo last week that the changes the Dania Beach, Florida-based company is making “will proceed to supply consumers the unrivaled value that they’ve come to expect for a few years to return.”
Spirit declined to comment on whether it might file for bankruptcy again or whether lessors are attempting to remarket its planes.
“We won’t comment on market rumors and speculation,” Spirit said in an emailed statement. “Spirit Airlines is a critical a part of the U.S. aviation industry, and we offer high-value travel options to the communities we serve. We’ve got saved consumers tons of of thousands and thousands of dollars, whether or not they fly with us or not. Our focus is on making the crucial changes to higher position the corporate and construct a stronger airline. We remain hard at work on many initiatives to guard our business, valued Team Members, partners and Guests.”
Travelers wheel luggage toward Spirit Airlines check-in desk at George Bush Intercontinental Airport, Tuesday, Nov. 21, 2023, in Houston.
Jason Fochtman | Houston Chronicle | Hearst Newspapers | Getty Images
IBA’s Hatcher said it’s attending to be the improper time of 12 months — the low season, after the height summer and before the winter holidays — to position aircraft with other airlines, though pricing has been firm. It has been even stronger for spare Pratt & Whitney engines. The engines for Airbus A321neos that Spirit uses are renting for $15.8 million a month, up about 50% from 2019, based on IBA data.
But some warn that even deep cuts cannot all the time turn an airline around.
“You might have no place to sleep should you burn your bed,” said Brett Snyder, founding father of the Cranky Flier travel website, creator of a weekly airline industry network evaluation and a former airline manager.
Meanwhile, the carrier already plans to furlough tons of of more pilots, and each aviators’ and flight attendant unions are bracing employees for worse news ahead.
“Spirit is in a fragile financial position, likely more so than at any point within the previous 24 months,” the Association of Flight Attendants-CWA, which represents Spirit’s roughly 5,400 cabin crew members, said in a note to the members on Aug. 12, after Spirit’s warning. “Use this time to evaluate your financial situation and start strategizing how best to weather the financial impact that flying cutbacks could have in your household.”
Tons of of its flight attendants have already taken temporary leaves of absence, which allowed them to maintain medical advantages.
Rough few years
Spirit has faced other challenges leading as much as its bankruptcy filing last 12 months.
A Pratt & Whitney engine recall grounded a lot of its aircraft starting in 2023. That very same 12 months it reached a deal to merge with fellow budget carrier Frontier Airlines, but shareholders rejected the deal in favor of an all-cash takeover by JetBlue Airways that was ultimately shot down in a federal antitrust case, leaving each carriers on their very own.
Frontier was in merger discussions with Spirit last 12 months just before Spirit’s bankruptcy filing, but those talks fell apart.
“They’ve squandered every opportunity to make every part work,” Snyder said.
An oversupply of domestic flights also drove down airfare lately, prompting the industry to in the reduction of capability, and the trend was especially punishing for U.S.-focused carriers. Those low-fare carriers had one other problem when wages went up within the wake of the pandemic, upending their low-cost model.
“I believe there could have been a little bit of optimism on their part when it comes to sort of the strategic reset that they’d planned,” said Fitch’s Rohlena. “That then got here face-to-face with a harder, harsher aviation environment.”
