Spirit Airlines Bankruptcy Tees Up Painful Cuts In Survival Bid

Spirit Aviation Holdings Inc.’s second bankruptcy filing in a year signals that the low-cost carrier is finally facing up to the painful steps needed to ensure its survival.

But its board faces daunting challenges on the path ahead, including how to downsize its fleet of leased aircraft while managing the roller coaster market conditions for US air travel that complicate the prospects for a long-term recovery.

“The general criticism of the first bankruptcy is that Spirit wasn’t aggressive enough in cost cutting and only using the filing to address debt to some extent (perhaps not enough even then),” Raymond James analyst Savanthi Syth wrote in an email. “Spirit has been making many adjustments already since last fall. However, further cuts appear likely.”

The bankruptcy, filed late on Friday in New York, lists assets and liabilities of between $1 billion and $10 billion. The petition comes amid active negotiations with some of its largest lessors, secured noteholders and key stakeholders, the carrier said in a statement.

Spirit’s petition underscores the difficulty facing discount airlines in the US, from high labor costs to the ever-present struggle to grow enough to protect margins. 

It’s unclear how dramatic an overhaul Spirit could pursue. 

Ultra-low-cost carriers are hit harder when there’s too much capacity on routes, forcing them to cut fares at the expense of profits. Unlike the industry’s leaders, Spirit lacks long-haul international routes that can make up for weakened demand in the domestic market.

Spirit emerged from bankruptcy protection in March, while the US airline industry was in the midst of a sharp decline in flying by consumers concerned with President Donald Trump’s trade war and rising inflation. It’s unclear how dramatic an overhaul Spirit could pursue. 

Ultra-low-cost carriers are hit harder when there’s too much capacity on routes, forcing them to cut fares at the expense of profits. Unlike the industry’s leaders, Spirit lacks long-haul international routes that can make up for weakened demand in the domestic market.

Spirit emerged from bankruptcy protection in March, while the US airline industry was in the midst of a sharp decline in flying by consumers concerned with President Donald Trump’s trade war and rising inflation. 

Flying has bounced back, but the whipsaw market conditions — including a new trend of late bookings — has undermined carriers’ ability to forecast demand. 

There’s still a lot of uncertainty about what carriers will be able to charge for tickets given airline capacity plans are still being adjusted for the crucial holiday travel period, analysts say. An oversupply could gut fares — heaping extra pressure on lower cost carriers more so than larger operators.

If history is any guide, Spirit’s board will have more than market forces to worry about. 

Part of Spirit’s challenge will be how to downsize its fleet as it works to cut costs. It’s expected to encounter tough negotiations with lessors, which supply the bulk of Spirit’s fleet. In bankruptcy, some airlines have been allowed to return planes on lease, though it’s unclear whether Spirit will be able to win approval to pursue that path.

“With the current board and management, we expect a more aggressive review of costs and negotiation with partners, most notably lessors,” Syth said.

In a filing, Spirit said it received a written notice of default Aug. 25 from aircraft lessor AerCap Holdings, which said it was terminating dozens of leases on aircraft that were scheduled for delivery to Spirit in coming years.

Termination would cost Spirit more than $2 million per lease and apply to dozens of aircraft, the filing said. Spirit disputed the notion of a default, and said the termination of leases was invalid.

As of June 30, Spirit had 215 Airbus SE A320-family aircraft, including 148 financed under operating leases with terms expiring between 2026 and 2043. It owns 49 planes and has 18 under finance leases.

Spirit may try to return as many as 150 leased planes, Jefferies analyst Sheila Kahyaoglu said. Less than 50% are likely to return to the domestic market, she said, because most carriers already have sufficient capacity to meet demand.

“This bankruptcy will be harder and look different than last year,” leaders of the Association of Flight Attendants-CWA at Spirit told members on Friday. The airline will likely offer more extended voluntary leaves to employees, the union said. Previously announced pilot furloughs and downgrades will take effect in October and November.

Airlines operating in Chapter 11 can be particularly vulnerable as takeover targets and the proceedings could make Spirit more susceptible to a suitor.

The carrier’s filing comes a day after Bloomberg reported that Spirit engaged rival Frontier Group Holdings Inc. in high-level talks about the carrier’s ongoing efforts to chart a path forward. Frontier and Bill Franke, the Frontier chairman, have pushed for years for a combination of the two lower-cost carriers.  

America West Airlines merged with bankrupt US Airways Group in 2005. The combined company, operating under the US Airways name, acquired American Airlines parent AMR Corp. in 2013 to bring that carrier out of bankruptcy.

Spirit was bruised by a 2022 takeover battle between JetBlue Airways Corp. and Frontier. Spirit eventually agreed to be acquired by JetBlue in a $3.8 billion deal, but the combination was blocked in January 2024 by a federal judge on antitrust grounds.