US budget carrier Spirit Airlines has announced it has filed for bankruptcy protection after accumulating debt and losing more than $2.5bn since 2020
But it has stressed to its customers that it will still continue to fly.
The airline announced on Monday 18 November that it has entered into a “restructuring support agreement” that has been supported by a supermajority of its bondholders.
The filing follows two failed attempts to merge with other airlines, falling stocks and a loss of income due to lower revenues and higher expenses.
Spirit says the restructuring should reduce its debt, provide financial flexibility and position Spirit for “long-term success” by investing in passenger experience.
Spirit expects to continue operating business as usual while it navigates a prearranged, streamlined Chapter 11 process, which is a declaration of bankruptcy while it reorganises its company and seeks relief.
“Guests can continue to book and fly without interruption and can use all tickets, credits and loyalty points as normal,” the airline said.
They also added the Chapter 11 process itself will not impact employee or vendor wages or benefits.
The airline said it has received commitments for a $350m equity investment from existing bondholders and will complete a debt-reducing transaction to equitise $795m of funded debt.
To implement this restructuring agreement, the airline has commenced a prearranged Chapter 11 process in the United States Bankruptcy Court for the Southern District of New York.
Existing bondholders are also providing $300 million in debtor-in-possession, which along with Spirit’s cash reserves, is expected to help the company through the bankruptcy process.
Ted Christie, Spirit’s president and CEO, said he was “pleased we have reached an agreement” with bondholders that he said shows a “strong vote of confidence in Spirit and our long-term plan”.
“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."
Spirit hopes to emerge from the Chapter 11 process by the first quarter of 2025 in an “even better positioned to deliver the best value in the sky”.
“Other airlines that are operating successfully today have undertaken a similar process,” they added.
As a result of the listing, Spirit expects to be delisted from the New York Stock Exchange in the near term.
The news comes less than a week after it was reported that merger talks with Frontier Airlines fizzled out, causing Spirit to prepare to seek bankruptcy protection.
Its stock has fallen by nearly 80 per cent this year, with the airline saying in a statement on 12 November that its adjusted operating margin in the third quarter is down 12 per cent from last year due to lower revenues and higher expenses.
Spirit said its revenues are estimated to be about $61m lower compared to last year, partly due to the airline no longer charging change and cancellation fees.
Frontier and Spirit had been set to merge in 2022, before JetBlue Airways presented the airline’s investors with a higher offer.
Yet, in January, a federal judge barred JetBlue from acquiring Spirit as it was ruled that the deal would not be fair on low-budget airline market competition and could drive up prices for passengers.
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