Spirit Airlines shares plunged by 30% after a report claimed that the airline is considering filing for bankruptcy.
The Wall Street Journal reported that the airline is considering filing for bankruptcy following the failed merger with JetBlue Airways. According to people familiar with the matter, the airline is discussing the possibilities with its bondholders.
Another option that Spirit Airlines is exploring is the possibility of restructuring its balance sheet via an out-of-court transaction. Nevertheless, recent discussions have centered on securing an agreement with bondholders and other creditors in the event of a Chapter 11 bankruptcy filing.
Struggling Financially
In recent years, the airline has faced significant financial struggles, grappling with losses and declining revenue as it seeks to manage the maturities of its $3.3 billion debt. This includes secured bonds worth more than $1.1 billion that are due in less than a year. The airline is also dealing with an upcoming deadline from its credit card processor, leaving Spirit with an option to either refinance or extend the notes by October 21.
In August, during an earnings call, Spirit Airlines CEO Ted Christie said that the airline is talking to the advisers of its bondholders to address maturities. Christie said, “Because those conversations are ongoing, we are not going to go into detail or take any questions on this topic or speculate on potential outcomes.” He added, “Needless to say, it is a priority and we are focused on securing the best outcome for the business as quickly as possible.”
Bankruptcy Inevitable?
Spirit Airlines has failed to make an annual profit since before the pandemic started. Even when travel demand picked up, Spirit and other budget airlines struggled to keep up with big airlines.
Aside from its financial problems, the recall of Pratt & Whitney engines used in Airbus 321neo aircraft also affected Spirit’s plans to expand. As a result, Spirit halted its planned Tulum flights, as the planes intended for these flights are now out of service.