Spirit Airlines Bankruptcy Talks

(Reuters) – Spirit Airlines is in discussions with bondholders regarding the potential terms of a bankruptcy filing following the unsuccessful merger with JetBlue Airways (NASDAQ:JBLU). This news led to a 30% drop in Spirit’s shares during extended trading.

The airline is also investigating ways to restructure its balance sheet through an out-of-court transaction. However, recent conversations are primarily focused on negotiating with bondholders and creditors to facilitate a Chapter 11 filing, as reported by the Wall Street Journal (WSJ).

Although such a filing is being discussed, it is not expected to occur immediately. In response to these developments, Spirit referred to its second-quarter earnings call where CEO Ted Christie mentioned ongoing discussions with bondholder advisers over upcoming debt maturities slated for 2025 and 2026.

Christie noted, “Because those conversations are ongoing, we are not going to go into detail or take any questions on this topic or speculate on potential outcomes,” adding that securing the best outcome for the company is a priority.

This potential bankruptcy news comes months after Christie had stated that the airline was not contemplating Chapter 11 and expressed optimism about its plan following the failed JetBlue deal.

The proposed $3.8 billion merger was abandoned in March after a U.S. judge blocked it in January due to anti-competition concerns. If the merger had succeeded, it would have created the fifth-largest airline in the U.S. and positioned Spirit better to navigate its financial difficulties while burdened by debt.

In its recent forecasts, Spirit warned of larger losses in the third quarter, primarily due to severe competition for budget-conscious leisure travelers and an excess of available seats in the domestic market. The airline has struggled to achieve profitability, reporting losses in five of the last six quarters, which raises concerns about its debt servicing capabilities.

As of fiscal 2023, Spirit Airlines holds approximately $3.06 billion in long-term debt and finance leases, excluding current maturities.