Spirit Airlines, a prominent budget carrier known for its no-frills approach, is preparing to file for bankruptcy protection after its merger talks with Frontier Airlines fell apart.
The decision marks a significant setback for Spirit, which has been grappling with mounting losses and a staggering $2.5 billion in debt.
Spirit Airlines Prepares for Bankruptcy
According to reports, Spirit is in advanced discussions with its bondholders to finalize a bankruptcy plan that would gain the approval of a majority of its creditors.
The Chapter 11 filing, expected within weeks, aims to allow Spirit to restructure its debts without disrupting operations or exhausting its remaining cash reserves.
The failed merger is the latest in a string of challenges for Spirit Airlines. Earlier this year, the airline's shares took a severe hit after a federal judge blocked a separate $3.8 billion acquisition attempt by JetBlue Airways.
The Justice Department argued that the deal would hurt consumers by reducing competition and increasing ticket prices, a decision that sent Spirit's stock plunging from $15 to $5 per share, Daily News said.
The latest breakdown in talks with Frontier further destabilized the airline. Spirit had initially considered a bankruptcy filing as a way to facilitate a takeover by Frontier, but the two parties were unable to reach an agreement. Following the announcement, Spirit's stock tumbled by 47%, closing at just $1.31 on Wednesday.
Frontier, which had originally pursued Spirit in 2022 before losing out to JetBlue's higher bid, has so far remained quiet about the recent developments. While its stock saw a slight decline, closing at $6.55 per share, the impact on Frontier has been far less severe.
Spirit Airlines' Struggles of Low-Cost Carriers
Spirit's looming bankruptcy highlights the challenges facing low-cost carriers in an increasingly competitive market. The airline, which built its brand on offering cheap fares and add-on fees, has struggled to maintain profitability amid rising operational costs and economic pressures.
According to Bloomberg, the aborted merger with Frontier was seen as a potential lifeline, offering an opportunity to combine resources and compete more effectively against larger rivals.
For now, Spirit's future hangs in the balance. If the Chapter 11 filing proceeds as expected, the airline will need to navigate a complex restructuring process to satisfy its creditors and restore financial stability.
Meanwhile, passengers and industry observers alike will be watching closely to see how Spirit Airlines adapts to these turbulent times.
As Spirit aims to reorganize and stay operational, the bankruptcy move underscores the volatile nature of the airline industry, where even established players face significant headwinds in today's economic climate.
