In November 2024 Spirit Airlines filed for Chapter 11 Bankruptcy protection and now, the ultra-low-cost carrier (ULCC) has won approval to exit bankruptcy. During bankruptcy, Spirit received multiple merger offers from fellow ULCC Frontier Airlines however the two sides could not come to an agreement.
Spirit will exit bankruptcy protection via a lender-backed take-private deal. The restructuring turns over control of the carrier to its top bondholders which includes Ken Griffin’s Citadel Advisors, Pacific Investment Management Co. and Western Asset Management Co. This is according to court documents.
The restructuring terms cuts roughly $795 million in debt and obliges bondholders to inject $350 million into the company via an equity-rights offering. Existing Spirit shareholders will see their stakes in the carrier wiped out as part of the restructuring. This is unfortunate for them as the proposed tie-up with Frontier would have allowed them to retain some equity in the combined carrier.
With Spirit Airlines having identified its path forward, I’m still not sure what the airline’s plan is to stop losing money. As I mentioned in a post last week, Spirit’s fellow ULCCs are in a much better financial position and the travelling public is increasingly looking for a more elevated travel experience. We’ve seen multiple airlines looking to improve product offerings in order to compete for passengers.
Spirit also revamped its business model to try and capture more of these passengers. I flew with the carrier shortly after the changes were implemented and, while my flight was good, I expected a bit more.
It will be interesting to watch what actions the newly privatized carrier takes over the next few months in an effort to return to profitability. Could the private ownership group continue in negotiations with Frontier Airlines, itself owned by private equity firm Indigo Partners, or even explore selling off parts of the business? Rumors have been swirling regarding airline mergers and asset purchases in recent months so it’s within the realm of possibility.
Summary
Spirit Airlines has received approval of its restructuring plan from Judge Sean Lane. This will allow the Florida based ULCC to emerge from Chapter 11 Bankruptcy. The company will be taken private and handed over to top bondholders. Other Spirit shareholders will see their stakes in the company eliminated.
While the company’s restructuring plan has been approved, it still isn’t clear to me what the airline is planning on changing in order to become profitable. An asset sale or a merger could still be on the table especially considering the ownership groups for Spirit and Frontier.
I still think it is eventually going to bought out or merged with another airline.
That or selling it off in chunks is the only way I see this ending.