Spirit Airlines has borrowed $275 million from Citibank as part of a revolving credit agreement, and $50 million of that will be used to pay the carrier’s credit card payment processing vendor to stop it from cancelling its service.
Earlier this month, Spirit revealed that the vendor planned to terminate its agreement in December unless the Florida-based carrier provided additional collateral.
The warning came at the same time that Spirit warned there was “substantial doubt” that it could continue as a going concern within the next 12 months, amidst widely reported financial woes for the ultra-low-cost airline.
Along with an immediate payment of $50 million, Spirit has also entered into an agreement with its credit card payment processing vendor that will allow it to hold back $3 million per day as additional collateral.
In return, the vendor will extend the service agreement with Spirit until the end of 2027 at the earliest.
Spirit’s chief executive, Dave Davis, has tried to downplay the seriousness of the SEC filing that raised fears the airline was heading for bankruptcy.
In an internal memo, Davis explained that the “substantial doubt” phrase had only been included in the filing because it was required by outside auditors.
The purpose of this warning was to convey the potential risk to the company if no action was taken, but Davis said action was being taken through a slew of cost-cutting initiatives.
A statement later in the same SEC filing, however, warned “there can be no assurance that such initiatives will be successful.”
Just a few months ago, Spirit emerged from Chapter 11 bankruptcy in a pre-packaged deal that was meant to secure the future of the beleaguered airline. Instead, the airline says its financial results are not improving at a rate fast enough to keep up with the minimum liquidity covenants.
Spirit blamed continued weak demand, especially amongst domestic leisure travelers, which is forcing the carrier to heavily discount fares.
In the months ahead, Spirit intends to sell some of its aircraft and surplus real estate, while it is also trying to auction spare airport gates to rivals.
