Spirit Airlines Files for Second Bankruptcy in a Year
Troubled budget carrier re-enters chapter 11 process after prior reorganization failed to fix problems
Spirit Airlines has filed for bankruptcy for the second time in a year after an earlier reorganization failed to put it on stable financial ground.
The discount airline said Friday it needs to slash costs and make sweeping changes to its business as it grapples with flagging travel demand and challenges to the no-frills business model it once pioneered.
The airline will continue flying and selling tickets through the bankruptcy process. It made the chapter 11 filing in bankruptcy court in the Southern District of New York.
Spirit filed for chapter 11 last November after multiple failed attempts to merge with other airlines. It exited court protection in March after having exchanged nearly $800 million of corporate debt for equity.
Spirit didn’t renegotiate its aircraft leases during the previous process, leaving the airline stuck with high lease costs in addition to its remaining burden of more than $2 billion in debt. Spirit’s new management team, appointed as part of the previous restructuring, has determined the company needs another chapter 11 process. In addition, the buoyant travel market that was expected postbankruptcy didn’t materialize, said Robert Milton, chairman of Spirit’s board since earlier this year.
“The right thing to do is to get on with a proper restructuring, a complete revamp of the business plan, the network plan,” Milton said in an interview. “We just need to get on with fixing this airline properly and thoroughly.”
The airline is looking to shed some planes and retrench to core cities such as Fort Lauderdale, Orlando and Detroit. Other areas of focus will likely include discussing bargaining agreements with unions and addressing problems stemming from a Pratt & Whitney engine defect that has grounded dozens of planes.
Discount airlines and those that cater to leisure fliers have been struggling to compete with bigger airlines like United, Delta and American that have their own inexpensive basic economy tickets but can also lure passengers with premium perks and far-flung destinations.
Spirit has been retooling its offering to appeal to higher-end consumers willing to pay extra for a more comfortable flying experience—efforts the carrier said it plans to expand as it reduces costs across its businesses.
Spirit’s bankruptcy could provide another opening for a merger with Frontier—one of the industry’s longest-running will-they-or-won’t-they sagas. Milton and Spirit Chief Executive Dave Davis met earlier this week with Bill Franke, Frontier’s chairman, to discuss Spirit’s plans and the state of the industry broadly.
Frontier has pursued a deal with Spirit several times, including making a last-ditch offer to buy it in January while Spirit was going through chapter 11.
Frontier, which earlier this week announced a slew of new routes aimed at picking up Spirit customers, declined to comment Friday.
Its shares rose 19% after the close of trading. Shares of other airlines also climbed as Spirit, which once undercut rivals’ prices and pressured competitors to lower fares, signaled plans to scale back.
Milton said a deal with Frontier still makes logical sense, but Spirit has had inquiries from other airlines. He said Spirit has the right executive team in place, and that by going through the bankruptcy process now it can gain an advantage, whether it remains on its own or combines with another carrier.
“If you’re smart, get on with it, do it with a sharp knife and not a blunt instrument, you come out in a far better position,” he said.