Spirit Airlines Inc. is taking drastic measures to stay afloat amid financial pressures and bankruptcy fears. The budget carrier recently announced that it is selling a fleet of its planes as part of a broader cost-cutting strategy aimed at improving liquidity and avoiding a potential Chapter 11 bankruptcy.
What planes are Spirit Airlines selling?
Spirit Airlines has agreed to sell 23 Airbus SE aircraft for $519 million to GA Telesis LLC. The planes will be delivered to the buyer through February 2025. According to a regulatory filing on October 24th, net proceeds from the sale, combined with eliminating the plane-related debt from its balance sheet, will boost Spirit’s liquidity by about $225 million through year-end 2025.
Is Spirit Airlines filing for bankruptcy?
While yet to officially file for bankruptcy, Spirit Airlines’ deal to sell some of its planes to GA Telesis LLC comes as the former holds talks with Frontier Group Holdings Inc. about filing for bankruptcy to facilitate a takeover by the rival discount carrier.
Spirit’s possible bankruptcy filing isn’t surprising, as it is now facing a liquidity crisis after its attempt to merge with JetBlue Airways Corp. was blocked on antitrust grounds, and subsequent efforts for a rescue by creditors were unsuccessful.
How is Spirit Airlines battling bankruptcy threats?
In addition to selling some its planes, Spirit has also sought to restructure its debt. According to Bloomberg, the carrier said on October 24th that it’s in “active and constructive discussions” with holders of senior secured notes due 2025 and convertible senior notes due 2026.
For the uninitiated, senior secured notes are a type of debt instrument issued by a company to raise capital. When a company issues senior secured notes, it’s essentially borrowing money from investors. The term “senior” means that these notes have priority over other unsecured debt in case of bankruptcy or liquidation. “Secured” means that the notes are backed by specific assets of the company, which can be used to repay the debt if the company defaults.
Convertible Senior Notes, meanwhile, are a hybrid debt instrument that combines features of both debt and equity. Like senior secured notes, they are a form of debt, but they also have an option to be converted into common stock of the company under certain conditions, such as reaching a specific stock price or at a certain time.
Furthermore, Spirit Airlines is implementing cost-cutting measures aimed at saving approximately $80 million annually, set to take effect early next year. These reductions will largely result from workforce downsizing in tandem with a planned decrease in flight operations.
On the day of the plane sale announcement, Spirit Airlines shares rose by 10% following regular trading in New York. Despite this uptick, Spirit’s stock has plummeted 85% over the course of this year, up until Thursday’s close, reflecting its ongoing financial struggles.