Spirit Airlines is preparing to file for bankruptcy protection following a collapse of a merger with Frontier Airlines. This report caused Spirit shares to fall more than 60% to $1.19 in after-hour trading. The bankruptcy being filed is chapter 11 bankruptcy, this is “a way for a debtor to reorganize their finances and continue operating while paying off their debts."
Last month, The WSJ reported that Spirit was considering bankruptcy. Soon after, shareholders were reassured by Spirits plans to furlough hundreds of pilots and raise over $500 million by selling 10% of its planes. However, the recent signals of impending bankruptcy have reversed those gains, leaving the company’s value at $144 million by Thursday’s close, a 91% decline this year.
Spirit is now in talks with bondholders to figure out a bankruptcy plan that would have their support, Spirit is struggling with mounting losses and looming debt maturities. A bankruptcy filing is expected to happen within weeks, the creditors said.
A big part of Spirits plans going forward is to limit the number of routes it serves. The airline cut two dozen routes earlier this month and currently serves 81 destinations as of November. For example, the cuts include the Charlotte, North Carolina, to Los Angeles route, which will only be served by American Airlines, as of January. This and all routes operated by one carrier are likely to mean higher prices for passengers because of the lack of competition and consistent demand.
According to Raymond James analysts, a merger with Frontier “could happen once Spirit's balance sheet and fixed costs have been resized.” As of Friday, November 15, Spirit is trading at $1.08.
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