The Florida-based airline said it had pre-arranged a deal with its bondholders to restructure its debts and raise money to help it operate during the bankruptcy process, which it expects to exit in the first quarter of 2025.
The carrier said it expected to continue operating its business as normal through the proceedings and customers could book and fly without interruption.
The Chapter 11 process will not impact wages or benefits of its employees, it said. Its vendors and aircraft lessors will also continue to be paid and will not be impaired, it added.
The company said it expected to be delisted from the New York Stock Exchange in the near term, and its shares to be canceled and have no value as part of the restructuring.
PROFIT STRUGGLE
Spirit, known for its bright yellow livery, is the first major U.S. airline to file for Chapter 11 since 2011. It has been facing an uncertain future after the collapse of its $3.8 billion planned merger with JetBlue Airways (JBLU.O), opens new tab in January.
Meanwhile, intense competition among U.S. carriers for price-sensitive leisure travelers as well as an oversupply of airline seats in the domestic market hit its pricing power. Its average fare per passenger was down 19% year-on-year in the first half of this year from a year earlier.
It is also among the airlines most heavily affected by issues with RTX's (RTX.N), opens new tab Pratt & Whitney Geared Turbofan engines, which have forced it to ground multiple aircraft and driven up costs.
Spirit has not posted a full-year profit since 2019. It lost about $360 million in the first half of this year despite strong travel demand.
Analysts say a merger with JetBlue opens new tab would have thrown a lifeline to the company. However, a Boston judge blocked the deal on the grounds it would reduce competition, raising doubts about the company's ability to manage looming debt maturities.
Spirit has been shrinking its operations as part of its efforts to cut costs and shore up its finances. It has furloughed hundreds of pilots and delayed aircraft deliveries. It is also selling its planes to boost liquidity.
A 'COMPREHENSIVE' RESTRUCTURING
It filed for Chapter 11 protection in New York. The airline said a "comprehensive balance sheet restructuring" was expected to reduce total debt, provide increased financial flexibility, position it for long-term success, and accelerate investments.
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As part of the restructuring agreement, the company has received commitments for a $350 million equity investment from existing bondholders. It plans to reduce its debt load by $795 million via debt/equity swap transaction.
Existing bondholders will also provide $300 million in debtor-in-possession (DIP) financing, which, together with available cash, is expected to support the airline through the Chapter 11 process.
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Spirit's flight attendants union said the bankruptcy filing does not change pay, benefits or working conditions for its members. It told flight attendants to continue to work as planned.
Spirit's shares, which have plunged more than 90% this year, were halted for trading on Monday.
HUMBLE BEGINNINGS
The company started out as a long-haul trucking company in 1964 before shifting to aviation around 1983. It offered leisure packages to popular destinations under the name Charter One Airlines and rebranded to Spirit in 1992.
The discount carrier became popular with budget-conscious customers willing to forgo amenities like checked bags and seat assignments.
Ultra-low-cost carriers, which excelled at keeping their expenses low and offering affordable, no-frills travel, have struggled since the pandemic as some travelers prefer to pay extra for a more comfortable journey as they pursue experiences.
By Shivansh Tiwary and Rajesh Kumar Singh, Reuters Spirit's troubles, along with those at some of rival budget carriers, have spurred talk of a flawed business model among some Wall Street analysts.
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