More Airline Bankruptcies May Be Coming — JetBlue And Frontier Face The Highest Risk

Enilria says that “Analysts Think More Chapter 11s Coming” to airlines and then estimates the risk for several ‘by 2027’ at:

• JetBlue: greater than 75%
  
• Frontier: 45% – 50%
  
• Allegiant: 36.7%
  
• American: 2.9% – 15%
  
• Alaska: Less than 3%

I think these percentages are overly scientistic, especially since they don’t quite appear to be representing real market probabilities implied from bond yeilds with true spread-implied number and whether a distressed exchange is actual default. Still, as a ranking exercise I think we’re looking at something reasonable for JetBlue and Frontier, and a suggestion that American and Alaska probably are not looking at anything of this sort.

JetBlue Has Greatest Bankruptcy Risk

Two weeks ago JetBlue founder Dave Neeleman warned that airline could go bankrupt this year and said that nobody would likely buy the whole thing becaue of $9 billion in debt. In other words, it would take chapter 11 addressing liabilities to repackage it for sale.

JetBlue CEO Joanna Geraghty says they are not contemplating a chapter 11 filing this year which of course begs the question about what 2027 looks like for them based on how macro conditions develop. They haven’t made money in six years.

Between long-term losses, high debt, and increased fuel expense – plus a weak market position in New York, a weakened position in Boston as Delta used their inability to simultaneously grow in New York and defend Boston during their American Airines partnership (hence the logic of buying Spirit’s planes and pilots in the first place), and possible subsidies to prop up their major competitor in Fort Lauderdale they’re in a difficult position.

Their credit rating has been downgraded to CCC+ (by Fitch) and they could be looking at a pre-tax loss greater than $1 billion this year.

However, they ended the first quarter with $2.4 billion of liquidity, excluding an undrawn $600 million revolver, and more than $6 billion of unencumbered assets. They secured a $500 million aircraft-backed financing commitment with an option to increase it by $250 million.

And their 2025 10-K shows scheduled debt maturities of:

• $755 million in 2026
  
• $411 million in 2027
  
• $516 million in 2028
  
• $1.768 billion in 2029.

That could forestall any balloon payment forced filing until 2029, giving them time to turn around their finances. They’re a weak player with huge challenges, but – and I don’t love second-guessing market pricing – I don’t see why a filing by 2027 is significantly more likely than not.

Frontier Airlines Is Next-Most Vulnerable

Bailing out Spirit Airlines props up Frontier’s largest ultra-low cost competitor. They’ve been substantially unprofitable for the past six years, helped by sale-leasebacks of aircraft (basically selling them for arguably more than they’re worth, booking profits, and increasing interest expense).

They’re not in a position to absorb higher fuel costs because of their negative margins, price-sensitive customers, and lack of premium products. Without business class, lounges, and international partnerships their cobrand credit card (the cash cow of the legacies) is not as lucrative as competitors.

They can handle their debt maturities of $303 million in 2026 and $63 million in 2027. The problem is aircraft lease payments of around $800 per year and purchase commitments of $1.4 billion this year and $2.1 billion next year. I would not be surprised to see them put off these commitments at a cost. They’re already returning aircraft and deferring future deliveries.

Frontier is vulnerable but to a risky economy and long-term elevated fuel prices, but current conditions don’t scream bankruptcy by 2027.

Allegiant Doesn’t Seem Likely

Allegiant is profitable. They have manageable debt and aircraft purchase obligations that they can presumably finance or defer (at a cost). They’re buying Sun Country and that’s expensive, but Sun Country’s operations shouldn’t be a significant drag. They had industry-ceiling margins before the current run up in fuel prices. I just don’t see giving them a one in three chance of default risk by 2027.

American Airlines Faces Risks – In 2028

I pointed out earlier the wall of debt maturities that American Airlines is facing, especially come 2028. I don’t see them being unable to refinance it, though. Total debt is down to less than $35 billion, though still huge they’ve managed through that level for a decade. If they’re unable to get premium revenue up in the face of rising fuel costs, though, losses and existing debt become more of a challenge.

• $3.6 billion due in 2026
  
• $4.5 billion in 2027
  
• $7.3 billion in 2028
  
• $4.0 billion in 2029

American has about $11 billion in liquidity. If you assume their reported $27 billion of unencumbered assets and first-lien borrowing capacity would actually be worse less under the kind of conditions we’re talking about, they should still be able to borrow. That doesn’t mean more borrowing makes sense for the long-term viability of the business, but they also shouldn’t be forced into chapter 11.