While the word "bankruptcy" brings to mind images of shuttered gates and liquidation (and that is indeed what happened to a number of low-cost airlines this year), filing for Chapter 11 protection is actually a way to keep the company going and reorganize finances amid rising debt.
Related: Troubled airline gets more painful stock price news
For example, Scandinavian Airlines, the Copenhagen-based airline commonly known as SAS, filed for bankruptcy in February 2022 amid a drop in traveler numbers during the pandemic.
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However, it was able to officially emerge from it after ownership was redivided ownership between several local investment firms, the Danish government, and Air France-KLM AFRAF.
Major airline says bankruptcy is part of a plan
Spirit Airlines (SAVE) , which has been the source of bankruptcy rumors ever since a judge blocked JetBlue Airways' (JBLU) plan to acquire it last February, started off the week of Nov. 18 by announcing that it has finally filed for Chapter 11 bankruptcy protection in the Southern District of New York.
The Florida-based airline has accumulated over $3.8 billion in debt while plans for another acquisition by fellow low-cost airline Frontier Airlines (ULCC) also fell through.
Related: I just flew business class on Spirit — here is what it was like
"Spirit has entered into an agreement with our bondholders that is expected to reduce our total debt, provide increased financial flexibility, position Spirit for long-term success and accelerate investments providing Guests with enhanced travel experiences and greater value," the company wrote in a letter to customers and shareholders. "Part of this financial restructuring includes filing a 'prearranged' chapter 11."
The filing includes securing an additional $300 million in additional financing; the airline will continue running flights according to its usual schedule and plans to re-emerge from bankruptcy by the first quarter of 2025 (a plan that sounds extremely ambitious given that emerging from bankruptcy can take years and the airline is still struggling with the issues around lower passenger count that brought it to its current state.)
Amid falling revenue, Spirit's third-quarter operating profit margin was 12 percentage points lower than in 2023.
Spirit says flights not canceled
"The most important thing to know is that you can continue to book and fly now and in the future," Spirit wrote in a reassurance to passengers. "We also want to assure you can use all tickets, credits and loyalty points as normal."
More on retail and bankruptcy:
- Walmart store closing, auctioning off laptops and flat-screen TVs
- Home Depot CEO sounds the alarm on a growing problem
- Famous restaurant files for Chapter 11 bankruptcy
Spirit chief executive Ted Christie confirmed that a majority of the airline's bondholders voted in favor of this bankruptcy plan and see it as a "vote of confidence" into its ability to keep the airline running without cutting flights anymore than what was already scaled back earlier in the year in last-ditch efforts to avoid bankruptcy.
Spirit Airlines shares, which experienced the largest single-day drop of more than 60% when the Wall Street Journal first broke the news that a bankruptcy filing was close, started out pre-market trading down 18% at $1.08. Year-over-year, the stock is down by more than 98%.
"I am pleased we have reached an agreement with a supermajority of both our loyalty and convertible bondholders on a comprehensive recapitalization of the Company, which is a strong vote of confidence in Spirit and our long-term plan," Christie said further.
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