Spirit Airlines Inc. has filed for bankruptcy on Monday with a plan to hand over control to bondholders after failing to arrange a merger with rivals. The airline sought Chapter 11 protection in New York to restructure $1.6 billion of debt, according to court filings.
It is the first major United States-based airline to file for Chapter 11 bankruptcy protection in more than a decade, after a proposed $3.8bn merger with JetBlue Airways collapsed in January.
The company said its operations would continue uninterrupted as the bankruptcy process plays out.The bankruptcy filling took place after two failed mergers, with Frontier Airlines and JetBlue.
The Florida-based airline said on Monday that it had pre-arranged a deal with its bondholders to restructure its debts and raise money to help it operate during the bankruptcy process, which it expects to exit in the first quarter of 2025.
It was forced to start restructuring talks with creditors after a federal judge blocked a $3.8 billion acquisition by JetBlue Airways Corp., ruling the combination would harm cost-conscious travelers by driving up the price of airline tickets across the industry. Separate talks for a merger with Frontier Group Holdings Inc. also fell apart in recent weeks, paving the way for the bankruptcy filing.
Spirit Airlines President and CEO Ted Christie said in a press release,
"This set of transactions will materially strengthen our balance sheet and position Spirit for the future while we continue executing on our strategic initiatives to transform our guest experience, providing new enhanced travel options, greater value and increased flexibility,"
"I'm extremely proud of the Spirit team's hard work and dedication, which is key to our sustained progress in advancing our business and delivering for our guests."
The budget carrier has reached an overhaul agreement with creditors holding about 80% of the debt to be restructured and has enough support to receive court approval, according to court documents.
Under the proection plan, which can be revised during the Chapter 11 process, existing bondholders will swap $795 million of their notes for equity, while shares will be delisted. Holders of senior secured and convertible notes will receive $840 million of new secured notes.
Bondholders also committed to inject $350 million of fresh equity and provide $300 million of debtor-in-possession financing to support Spirit throughout the Chapter 11 process.
The carrier said it has about $3.6 billion in long term debt, including $136 million in unsecured term loans it owes the federal government as part of COVID-19 pandemic-era related support.
Spirit, with an employee count exceeding 12,700, could not recover following the COVID-19 pandemic as the largest U.S. carriers stepped up use of basic economy fares to lure travelers away, while part of its fleet was grounded by an engine manufacturing defect.
It has been among the airlines most heavily affected by issues with RTX-owned Pratt & Whitney Geared Turbofan engines, which have forced it to ground multiple aircraft and driven up costs.
Most recently, fares were held down during the crucial summer travel period because airlines put too many seats into the domestic market. Spirit has not posted a full-year profit since 2019. It lost about $360m in the first half of this year despite strong travel demand.
The Chapter 11 protection length will not impact wages or benefits of its employees, it said. Its vendors and aircraft lessors will also continue to be paid and will not be impaired, it added.
Chief Executive Ted Christie told customers in an emailed letter on Monday that they could continue to book and make flights on the carrier "now and in the future," using all tickets, credits and loyalty points as normal.
"We expect to complete this process in the first quarter of 2025," Christie said. "Other airlines that are operating successfully today have undertaken a similar process."
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