Spirit Expected to File for Bankruptcy
In recent years, Spirit has faced a number of financial woes, compounded by the devastating impacts of the COVID-19 pandemic on the aviation industry as a whole. Low cost carriers seldom have high profit margins, but Spirit Airlines’ net loss for the second quarter of 2024 was $192.9 million due to overcapacity and competition. The airline implemented cost-saving measures, including a hiring freeze and staff furloughs, aiming for $100 million in annual savings.
In February 2022, Spirit announced it would be bought out by Frontier Airlines. The deal was rejected by Spirit’s shareholders. Just a few months later, in April, JetBlue announced intentions to purchase the Spirit for $33/share, equivalent to $3.6 billion. In May, Spirit said its board of directors has decided not to consider JetBlue’s proposal, citing fears that it would be blocked by the United States Department of Justice Antitrust Division, arguing that JetBlue was already being examined by the DOJ for it’s dealings with American Airlines.
However, contrary to Spirit’s previous statements, in July 2022, JetBlue reached an agreement to purchase Spirit for $33.50 per share, with additional inducements for Spirit shareholders. As predicted, the DOJ went after the deal on grounds of antitrust laws. Following a trial, a federal judge blocked JetBlue’s acquisition of Spirit Airlines on January 16, 2024, citing that the deal was anticompetitive towards other airline corporations and would harm consumers. Following the ruling, Spirit’s stock plummeted 47% as many financial analysts expressed concern about the airline’s fiscal future.
In October of 2024, Spirit once again reentered talks with Frontier, which ended up falling through. As the Wall Street Journal reports, the airline is preparing to file Chapter 11 bankruptcy. The airline could move forward with its bankruptcy filing within the next few weeks, sources familiar with the matter told the WSJ. The airline has already furloughed 330 pilots, with more staff cuts expected on the horizon.
However, a Chapter 11 bankruptcy filing isn’t necessarily the end the line for Spirit. Chapter 11 bankruptcy is a court-supervised process that allows a debtor to reorganize their finances and debts while remaining in business. A company in Chapter 11 has to submit a detailed plan and execute it with court approval. Following a successful execution of the plan, the court can rule to grand a discharge of some or all of the company’s debt.
