Major Budget Airline Officially Files For Bankruptcy

Joining the long list of companies, restaurants, and beloved brands that have filed for bankruptcy in 2024 is Spirit Airlines. In fact, it took only a matter of days between when The Wall Street Journal first reported on the budget airline's preparation to file for bankruptcy protection to the airline formally announcing it was restructuring on the morning of November 18, 2024. In a letter sent directly to Spirit Airlines customers, Spirit President and CEO Ted Christie wrote, "Spirit has entered into an agreement with our bondholders that is expected to reduce our total debt, provide increased financial flexibility, position Spirit for long-term success, and accelerate investments providing Guests with enhanced travel experiences and greater value."

Perhaps the most important thing for current Spirit customers to realize is that their flights won't be affected, and those still looking to book flights in the future are able to. This signals that the company fully expects to be able to exit Chapter 11 (after its debt restructuring) and get back to operating without issue. "We expect to complete this process in the first quarter of 2025 and emerge even better positioned to deliver the best value in the sky," Christie also shared in Spirit's letter, adding, "Other airlines that are operating successfully today have undertaken a similar process."

Indeed, major carriers like United, Delta, and Ryan International Airlines have all entered Chapter 11 in the past and are still operational today. Let's dive into what contributed to Spirit Airlines' financial predicament, and what's next for the country's largest budget carrier.

It's worth noting that Spirit Airlines had tried multiple times to engage in merger deals that would have helped to manage its ongoing financial issues. For starters, Spirit Airlines tried, unsuccessfully, to merge with Frontier Airlines (another airline that has previously filed for Chapter 11) on more than one occasion. In fact, since 2016, the two airlines had engaged in on-again off-again merger talks that never ultimately came to fruition. With that said, in February 2022, Frontier did reach an agreement to buy Spirit, which was at the time valued at $2.9 billion. However, JetBlue then made a competing offer that led to a bidding war. Investors ultimately chose JetBlue after the new proposed deal involved significantly more money.

In July 2022, Spirit officially entered into a merger agreement with JetBlue Airlines in which JetBlue was meant to acquire Spirit for $3.8 billion. However, in January 2024, the U.S. District Court for the District of Massachusetts ruled against the acquisition under antitrust laws. This ruling destroyed any chance of a successful merger, which ultimately led JetBlue to terminate the agreement in March 2024. JetBlue CEO Joanna Geraghty stated at the time, "We believed this merger was worth pursuing because it would have unleashed a national low-fare, high-value competitor to the Big Four airlines." However, she added, "given the hurdles to closing that remain, we decided together that both airlines' interests are better served by moving forward independently." After a brief rekindling of potential merger talks with Frontier over the late summer, Spirit ended up filing for bankruptcy.

While you might assume that filing for bankruptcy means a company is liquidating its assets and going out of business (and some eventually do), filing for Chapter 11 bankruptcy ultimately means a company is trying to reorganize. The company essentially files for court protection (from its creditors) in order to reorganize its debts and existing finances in the hopes of becoming financially stable.

A key element of Chapter 11 is that most companies choose to continue operating their business during the process. However, how each company decides to ultimately handle its restructuring can vary. While some companies, like say Franchise Group, Inc. (which is closing all 328 American Freight locations), might choose to liquidate entire brands under their umbrella in order to save other more profitable brands in their portfolio, an airline like Spirit, which operates under a single brand, doesn't really have that option.

Spirit does plan to be delisted from the New York Stock Exchange soon, and for all of its current shares to be canceled (have no value) as part of the restructuring process. It's also important to mention that Spirit has ensured that its employees' pay and benefits, as well as the pay for its vendors and lessors, will not be affected during the process. Spirit did share that it has already received a $350 million equity investment commitment from its existing bondholders and that the company plans to reduce its current debt load by utilizing a debt/equity swap, which it hopes will reduce its debt by $795 million.