Spirit Airlines files for bankruptcy, bondholders take charge
Make us a preferred source
Make us a preferred source on Google
The news: Spirit Airlines filed for Chapter 11 protection in New York after failing to secure a USD3.8 billion ($5.87 billion) merger with JetBlue amid persistent losses, becoming the first major US carrier in over a decade to file for bankruptcy.
The context: Spirit, known for its low-cost, no-frills model, has struggled with increased competition, high debt, rising costs and grounded planes due to engine defects.
It began restructuring discussions with creditors earlier this year, after a federal judge rejected JetBlue’s USD3.8 billion acquisition bid, because the merger would negatively impact budget-conscious travellers by raising ticket prices industry-wide.
Merger talks with Frontier Group Holdings also failed.
According to court documents cited by Bloomberg, the airline has reached an agreement with creditors holding about 80% of the debt to be restructured.
As part of the plan, bondholders will swap USD795 million of notes for equity, provide USD350 million in fresh equity and a USD300 million loan to support the airline during restructuring.
Spirit’s shares will be delisted and existing stockholders wiped out, but the discount carrier expects to continue operations and complete bankruptcy by Q1 2025.
The numbers: Spirit, which last posted a full-year profit in 2019, has accumulated over USD2.2 billion in losses since 2020.
Despite efforts like premium service offerings and cost-cutting, including plane sales and furloughs, the airline couldn't avoid bankruptcy.
The restructuring plan is backed by about 80% of bondholders, which should ensure its approval by the court.
The sources: Bloomberg , The Wall Street Journal , Reuters
