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- Spirit Airlines filed for Chapter 11 in 2024 and is pursuing a reorganization plan to stabilize finances and operations.
- Lenders objected that the reorganization plan ignores higher fuel costs, challenging plan feasibility in court filings reported by the Wall Street Journal.
- JPMorgan analysts estimate higher fuel could add about $360 million to expenses, exceeding Spirit Airlines' reported cash balance.
- Citibank says the plan splits a $275 million loan, violating the agreement and putting Spirit Airlines in default, enabling lenders to seize assets.
- Spirit Airlines reduced costs with layoffs and route cuts while Frontier Airlines and JetBlue Airways added service in Fort Lauderdale and Miami.
Spirit Airlines faces mounting financial woes amid skyrocketing fuel costs, threatening to delay the company’s plans to exit bankruptcy by early summer. Some experts speculate that the airline could liquidate as early as this week.
The budget carrier filed for Chapter 11 bankruptcy protection in 2024 and has been working toward a financial restructuring plan to stabilize itself. The airline reached an agreement with some of its creditors days before the U.S. and Israel launched airstrikes against Iran.
The lenders behind the airline’s revolving credit line filed an objection to the reorganization plan last week, arguing that the proposal doesn’t account for the airline’s higher fuel costs, according to Bloomberg.
Fuel remains one of the largest expenses for airlines, but unlike other major carriers, Spirit’s low-cost business model leaves it with limited flexibility to offset higher costs by raising fares without risking a decline in sales.
According to JPMorgan analysts cited by the Wall Street Journal, higher fuel prices could add roughly $360 million to Spirit’s expenses this year, exceeding the $337 million in cash the airline reported at the end of last year.
“If the debtors cannot demonstrate their viability at current (or possibly higher) fuel prices, they have no basis to represent that the plan is feasible,” attorneys for the lenders wrote in a Friday court filing obtained by The Wall Street Journal.
The February reorganization plan would also split a $275 million loan into two parts, violating the original contract, according to Citibank, which represents the lenders, as reported by the Journal. The bank says Spirit is already in default under the agreement, giving lenders the right to seize the company’s assets.
When asked about speculation that the airline may be headed for liquidation, Spirit declined to comment on what it deemed “rumors and speculation.”
The Spirit has already reduced expenses through layoffs and route cuts. But competitors have filled the gaps. Frontier Airlines and JetBlue Airways added service on routes where Spirit once had a strong presence, including Ft. Lauderdale and Miami International airports.
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