SAVE plans to file bankruptcy; What happens to shareholders?
2min read Spirit Airlines (SAVE) announced plans to file for bankruptcy protection following the collapse of merger discussions with Frontier Airlines (ULCC). In a regulatory filing, Spirit disclosed ongoing negotiations with a supermajority of its bondholders regarding restructuring its 2025 senior secured notes and 2026 convertible senior notes, signaling the airline’s urgent need to reorganize its debt. Despite discussions with Frontier to merge as part of a broader bankruptcy restructuring, Frontier ultimately decided not to proceed with the merger, eliminating a potential lifeline for Spirit.
Current Spirit shareholders will likely see their equity wiped out, as the company stated that any agreement with bondholders would cancel existing shares. Spirit emphasized that this statutory restructuring process is intended to protect general unsecured creditors, employees, customers, vendors, and suppliers, with no anticipated impairment for these groups. However, the expected outcome for shareholders is the complete cancellation of existing equity, should the restructuring proceed as planned.
Spirit’s financial struggles center around looming debt obligations and escalating losses, with particular pressure from a $1.1 billion bond maturity due in 2025. The airline is under significant pressure to secure restructuring arrangements as it faces a December deadline to refinance these bonds with its credit card processor, which could otherwise disrupt its revenue stream. Spirit’s limited liquidity options led to asset sales, including a $519 million transaction involving 23 planes to GA Telesis, but these moves are insufficient to address its debt crisis.
Operating metrics reveal Spirit’s deteriorating financial health, with third-quarter operating margins down 12 percentage points year-over-year, due to rising costs and lower revenue. Revenues dropped by $61 million, partly because of Spirit’s decision to stop charging for change and cancellation fees—a move that has undercut its income. At the same time, total operating expenses rose significantly, driven by higher aircraft rent, employee costs, landing fees, and other operational expenses.
The airline, known for its low-cost model that charges extra for services beyond basic seating, once thrived by appealing to cost-conscious fliers. However, the industry-wide shift to unbundled pricing has since become the standard, putting Spirit at a disadvantage as it faces rising operational costs and increased competition from larger carriers offering similar options. This model, once highly successful, has recently failed to deliver sustainable profitability amid intense competition and high costs.
Spirit’s delay in filing its quarterly report with the SEC underscores the financial strain on the company. Management cited time-consuming negotiations with bondholders as a reason for the delay, reflecting how the restructuring discussions are diverting resources from standard reporting processes. The delay itself has further undermined investor confidence, evidenced by the dramatic 60% drop in Spirit’s share price to $1.19 in after-hours trading.
In light of these developments, Spirit’s future hinges on successful debt restructuring and securing creditor support to avoid liquidation. With high debt and no buyer, Spirit’s options are dwindling, and it is under pressure to complete a restructuring plan to manage its obligations and avoid disruption to its operations. This critical juncture will determine whether Spirit can navigate bankruptcy and emerge as a leaner, competitive airline or face a more severe outcome if its restructuring plans falter.