While this shouldn’t come as a surprise to anyone who’s been following the industry, Spirit Airlines is considering a Chapter 11 bankruptcy filing. As first reported by The Wall Street Journal, the ultra-low-cost carrier (ULCC) has been in discussions with bondholders over the terms of a potential bankruptcy filing in the wake of its failed merger with JetBlue. This is the latest in a string of bad news for the carrier as it attempts to revamp its business model and return to profitability.
According to the report, a filing is not imminent but rather appears to be the preferred option for the airline. Spirit has some significant debt that will mature in 2025 and 2026 and it is likely the carrier will utilize Chapter 11 bankruptcy protection to address those issues.
One important item of note is that, with a Chapter 11 bankruptcy filing, the airline would be able to continue flying. Chapter 11’s are used to allow a debtor, in this case Spirit, to reorganize its finances and continue operating while paying off debts and restructuring into a profitable entity.
While I’m still not 100% convinced that a combined Spirit/JetBlue would have led to a profitable airline overnite, it would have certainly allowed the two struggling carriers to focus efforts on a single business model. Unfortunately for them, the United States Department of Justice (USDOJ) fought successfully to block the merger.
This is a stark contrast to the approach we saw them take when Alaska acquired Hawaiian Airlines last month. The USDOJ allowed its regulatory investigation phase to expire without taking any action. I guess they’ll do anything to “protect” the public interest on those east coast routes while forgetting that the United States extends past the Mississippi River.
Hopefully for all of the employees at Spirit the company can restructure its debt obligations and build a healthy balance sheet after a Chapter 11 filing. For now, we have to sit back and wait to see when the airline plans to file and what a restructured Spirit would look like in the future.
Summary
Spirit Airlines is reportedly considering filing for Chapter 11 bankruptcy protection as the carrier looks to restructure debts and return to profitability. While the ULCC was already having some issues, the failed merger between the airline and JetBlue seems to have pushed it closer to a bankruptcy filing in the coming months. Fortunately for passengers, the airline can continue to operate under Chapter 11 bankruptcy protection.
