Spirit Airlines Exiting Bankruptcy… But What’s The Plan?!

In November 2024, Spirit Airlines filed for Chapter 11 bankruptcy protection, after billions of dollars of losses since the start of the pandemic, plus a failed takeover by JetBlue. We knew that the airline was planning on a quick bankruptcy process, and the carrier is now getting ready to emerge from bankruptcy. What I can’t wrap my head around is what the company’s plan is, exactly.

Spirit Airlines exiting bankruptcy, being taken private

Bloomberg reports that Spirit Airlines has won court approval to leave bankruptcy via a lender-backed take-private deal. With this, control of the airline will go to a group that includes Citadel Advisors, Pacific Investment Management Co., and Western Asset Management Co.

In recent times, Frontier Airlines tried to make multiple bids to acquire Spirit while in bankruptcy, but that was ultimately rejected, with Spirit claiming it wouldn’t deliver as much value to creditors.

The restructuring deal that has been approved will see the airline cut around $795 million in debt, with bondholders committing to injecting $350 million into the company, via an equity-rights offering. Existing shares of Spirit Airlines stock will be canceled.

But how does Spirit stop losing bundles of money?

While it’s great that Spirit Airlines has had a pretty quick bankruptcy process, I can’t actually wrap my head around what the strategy is here. Spirit Airlines’ problem wasn’t simply that it had a huge amount of debt, but also that the airline has been reporting massive operating losses, and continues to do so.

Recently I posed the question of whether Sprit has an independent future. Spirit’s operating losses are just unbelievably bad. For example, in the first three quarters of 2024, the airline had revenue of $3.7 billion, and operating costs of $4.4 billion. Not only that, but nothing about the airline actually seems to be heading in the right direction. That performance is significantly worse than the same period the year prior, where there was revenue of $4 billion and operating costs of $4.3 billion.

For that matter, for the third quarter of 2024 (year-over-year), Spirit’s yields dropped from 11.23 cents to 10.66 cents, and Spirit’s average revenue per passenger per segment has dropped from $116 to $105. As Spirit has tried to become more “premium” and has eliminated fees, the carrier’s financial performance has only worsened.

Injecting $350 million into the company? Great, Spirit will burn through that in a matter of months just operating flights! I just don’t see any way that Spirit continuing to operate independently will work out, because numbers don’t lie.

The only theory I can come up with is wondering if there’s some play here to first take the company private (as is happening now) and then trying to come to a deal with Frontier, rather than that taking place in bankruptcy? Or is there some play by which the new owners could just try to sell off assets? That’s beyond my area of expertise, but is that what could be going on? At this point, I don’t see any planet on which Spirit has an independent future.

Bottom line

Spirit Airlines is preparing to emerge from bankruptcy, and will be taken private, with several investment firms partnering to own the company.

Given that Spirit’s operating losses have been approaching a billion(ish) dollars per year, and given that the airline isn’t actually improving its financial performance, I’m scratching my head as to what the strategy is here. Injecting $350 million into the company will cover the carrier’s operating losses for several months, maybe.

What do you make of Spirit emerging from bankruptcy, and what do you think the plan is?