Analysis: Not in the right Spirit in the US

US carrier Spirit Airlines entered bankruptcy protection at the end of August having only emerged from Chapter 11 protection in March.

 

Spirit had emerged from restructuring less than six months ago claiming it was “a stronger company” and insisting it would “continue to be led by Ted Christie and its existing executive team” only for Christie to resign the following month to be replaced by Dave Davis, who joined from US carrier Sun Country Airlines.

 

Davis explained the return to bankruptcy protection by saying: “Since emerging from previous restructuring, targeted on reducing Spirit’s debt and raising equity, it has become clear that there is much more work to be done.

 

“After thoroughly evaluating our options and considering recent events and market pressures, our board decided a court-supervised process is the best path forward.”

 

He insisted the airline would “double down” on overhauling its network, optimising its fleet and addressing its cost structure.

 

Spirit will also de-list from the New York Stock Exchange, with its shares “expected to have no value”.

 

In an open letter to passengers, Spirit said flights would operate as normal and it would maintain its existing schedule.

 

However, the carrier announced plans in early August to lay off 270 pilots from November 1 and to downgrade the roles of another 140 pilots, warning shareholders that otherwise the carrier might not survive.

 

Reports suggest the Florida-based budget airline plans to rebrand as a premium carrier.

 

Spirit has been in difficulty since 2022 when it accepted a takeover bid by rival Frontier Airlines but was then subject to a $3.8-billion bid by JetBlue.

 

The Spirit board recommended shareholders accept Frontier’s $2.7-billion offer, noting that JetBlue’s counter proposal carried “an unacceptable level” of regulatory risk. But JetBlue put its bid direct to shareholders and won.

 

The carrier then went into Chapter 11 bankruptcy protection in November 2022 while awaiting sign-off on the deal, with a stock market valuation of just $118 million and laden with $7 billion in debt despite the $3.8 billion takeover offer.

 

The JetBlue deal would have created the fifth-largest carrier in the US, but the Department of Justice, District of Columbia and states of New York and Massachusetts filed a joint anti-trust lawsuit to block the takeover on competition grounds, and a federal judge blocked the deal in January 2024.

 

JetBlue terminated the takeover four months later.

 

Spirit has gone back into Chapter 11 – or what some US bankruptcy experts refer to as Chapter 22 – loaded with $2.8 billion in debt on bonds and loans and owing £5 billion to aircraft lessors.

 

Analysts have predicted a lengthy period of restructuring amid declining demand for air travel in the US as the impact of federal government lay-offs, trade tariffs and general economic uncertainty weigh on household spending.