Spirit Airlines ‘discusses terms of potential bankruptcy filing with bondholders

Spirit Airlines is reportedly in discussions with its bondholders about the terms of a possible bankruptcy filing.

The budget carrier is also exploring restructuring its balance sheets through an out-of-court transaction, but people are familiar with the discussions told the Wall Street Journal that recent discussions have focused on reaching an agreement with bondholders and other creditors in support of a Chapter 11 filing.

The move comes just months after JetBlue pulled out of a merger deal, but bankruptcy filings won’t be filed anytime soon, the Journal reports.

In the meantime, Spirit continues to grapple with losses and declining revenues amid upcoming maturities across its $3.3 billion debt load – including more than $1.1 billion in covered bonds maturing within a year.

The company also faces an Oct. 21 deadline from its credit card processor to refinance or renew these notes.

The budget airline has been failing to turn a profit even before the COVID pandemic

CEO Ted Christie said earlier in June that the airline was not considering filing for bankruptcy, but said he was “encouraged” by the plan it put in place after the deal with JetBlue fell through.

But in an August earnings call, Christie admitted the company is having productive conversations with advisors to address maturities.

“Because these conversations are ongoing, we are not going to go into detail, ask questions about this topic or speculate about possible outcomes,” he said at the time, according to the Journal.

“Needless to say, this is a priority and we are focused on achieving the best outcome for the business as quickly as possible.”

But Spirit has stopped making annual profits even before the COVID pandemic.

As travelers began taking to the skies again, many turned to larger airlines, leaving Spirit and other budget airlines struggling to gain a foothold in the market.

The budget carrier was also hardest hit by a recall of Pratt & Whitney-powered turbofan engines, which grounded more than 10 percent of its fleet this year and slowed growth.

Spirit Airlines CEO Ted Christie said earlier in June that the airline was not considering filing for Chapter 11 bankruptcy, saying instead that he was “encouraged” by the plan it put in place after the deal with JetBlue fell through.

Spirit executives saw the merger with JetBlue as a way to regain market share, but the Justice Department argued that such a deal would violate antitrust laws, and Boston District Court Judge William Young agreed .

He ruled in January that the merged company would hurt travelers who rely on Spirit’s low fares and said it would reduce competition.

“The proposed takeover, in this Court’s attempt to predict the future in dark times, violates the core principle of antitrust law: protecting the United States markets – and its market participants – from anticompetitive harm,” Young said .

Initially, both JetBlue and Spirit argued that they would continue to push to expand the “JetBlue effect,” which has historically pressured major airlines to set cheaper fares.

Executives at the two airlines emphasized that their combination would benefit customers and increase their ability to compete with dominant U.S. carriers.

But in March, both airlines decided that they could not meet the conditions set by the judge for the merger to go ahead.

Spirit executives saw the merger with JetBlue as a way to regain market share, but the Justice Department argued that such a deal would violate antitrust laws.

In the months since, Spirit has announced it is cutting dozens of routes due to the busy holiday season and laying off 186 pilots as a cost-saving measure.

It now also plans to shrink its capacity by almost 20 percent in the fourth quarter of this year compared to the same period last year, Deutsche Bank aviation industry analysts announced this week.

Still, Spirit continues to struggle, with stock prices down more than 30 percent in after-hours trading on Thursday.

Last year, shares fell by more than 86 percent.