The U.S. bankruptcy trustee is pushing the courts to delay Spirit Airlines emergence from its second chapter 11, saying that it’s failed to explain to creditors why its plan the first time out of bankruptcy failed, so why this time should be different. And they say it’s failed to explain alternative plans explored and why their exit plan is superior – for instance, why not just take the deal that was on the table to merge with Frontier?
In fact, since Spirit’s plan to exit bankruptcy means wiping out all shareholders and wiping out all unsecured credits, the bankruptcy trustee says that the airline needs to do a better job of explaining why their exit plan isn’t better than just liquidating the whole thing and distributing the proceeds.
This week’s Airlines Confidential points out just how tenuous Spirit’s business is in the current environment,
JP Morgan analyst Jamie Baker had an interesting note. He noted that if jet fuel does remain at $4.60 a gallon for the rest of the year, Spirit Airlines, perhaps the weakest of the weak players, would see its operating margin go from negative 7% for this year to negative 20%. Spirit would have $360 million in added fuel expense, Jamie said…Baker noted that Spirit’s year-end cash balance was only $337 million. Bottom line, Spirit’s survival is kind of trapped in the Strait of Hormuz. Sure, it’ll raise more cash from selling airplanes and gates, but a reorganization plan just doesn’t work with negative 20% operating margins and dwindling cash.
Spirit is proposing significant downsizing as its reorganization plan. The new equity goes to the roll-up DIP lenders (subject to dilution). General unsecured claims and existing equity get nothing. They expect a fleet of just 76 – 80 aircraft by the third quarter.
The U.S. Trustee hasn’t asked the court to reject the plan on the merits – just not to approve the disclosure statement, so Spirit cannot start soliciting votes yet.
The Trustee says the disclosure statement does not contain “adequate information” because it does not explain the history and creation of the plan, what exactly happened in the first bankruptcy and why that restructuring failed so quickly, and what alternatives were considered (such as sale process). Spirit simply says their plan is better than liquidation, but doesn’t sufficiently flesh that out.
Since Spirit emerged from bankruptcy on March 12, 2025 and was back in Chapter 11 within six months, the trustee’s position is you can’t just wipe out equity and unsecured creditors with a new filing, say your plan maximizes value, and then not even explain why the first bankruptcy failed and why a sale or liquidation would be worse.
Presumably Spirit will cure the objection. What they actual have to do here is pretty limited, since the disclosure step is more procedural than anything else in the context of sophisticated creditors. It’s hard to argue Spirit is failing to help them understand why this is good for them.
Spirit wants to emerge from bankruptcy in early summer, after getting confirmation of its plan by May 27. The bankruptcy trustee is delaying this somewhat – but probably not a lot. The problems with Spirit’s plan are real. The trustee’s filing is about the paperwork around it. Creditors themselves could fight if the financial and demand environment deteriorates and Spirit’s plan looks even less likely to succeed. Shrinking to success is hard.
Meanwhile, our man-baby is threatening the independence of the Federal Reserve, yet again… we are not a serious people. Shameful.
Wind down the operations. Liquidate the assets. Pay the creditors. It’s the only way to be sure.
Spirit parts are prolly worth more than Spirit as an entity. There are multiple potential buyers.
Competitors are behaving as if Spirit is already gone.
@ 1990 — All that he is going to accomplish is having Jerome Powell stick around for 2 more years on the Committee. This is similar to the “two can play at this game” blockade, which is just going to mean that Iran will need to rely on a deal with China to pre-purchase its oil. The guy is a complete f***ing idiot.
@Gene — Oh, the ole, I’ll blockade your blockade with my own blockade? Soon, @Michael Mainello’s gonna come on here again and tell us we’re the dummies, and everything is ‘great’ again. Pathetic.
It is essential that spirit lives! Otherwise its customers will end up in other airlines….
Poorly written article. As usual.
The plan is supposed to benefit creditors not the business nor the employees and certainly not people on a travel website that want an ULCC. If creditors think they would get a better return by liquidating assets then that has to be seriously considered. Ultimately the bankruptcy judge would decide.
Since we do not have recent financials that would cover rising jet fuel costs it’s not practical to know whether Spirit could survive on $100 a barrel oil for any significant period of time.
There are too many people here and on OMAT that claim to be the “champions” of poor people but do not have clue one how poor people live. I was poor at one time and remember the days of having ten dollars to last three days until payday. Today people in the same situation easily get involved in payday loans, which has a spiraling effect. Even a $20 increase in average fares is problematic for ULCCs.
@George Romey — Oof. To be a creditor for Spirit Airlines. $5 billion on the line. AerCap (aircraft lessor out of Ireland) and Citibank are the main ones. How fun.
@Dirk – any particular reason?
@Gary Leff — @Dirk sounds like a jirk.
@ 1990 — Our Dear Leader is an expert at bankrupting airlines. Not to worry, no one ever could have possibly imagined that the stock market would be so high as it is today. NEVER, EVER.
Would any be interested in Spirit’s DTW focus city? Maybe Breeze?
A Greyhound revival is entirely appropriate for this day and age.
@Gene — He’s gonna have to re-hire Bondi so she can go back to Congress and testify about the Dow again!
Gene and 1990 – Get a room already, fellas. I’m sure all this TDS talk has you both hot and bothered.
Gene still might need a Viagra or two though.
@Mike Hunt — Hey, umm, like, is Kash alright, or still MIA? Or, was that Kegsbreath? And how is Howard Nutlick and his family able to so blatantly and corruptly profiteer off the tariffs? Sheesh. It isn’t even about the President. These are his people, though (‘the best’ people). Just ask, if 46 or 44 officials did any of this…