Spirit Airlines has managed to convince two unions representing thousands of pilots and flight attendants at the beleaguered ultra-low-cost carrier to accept contract concessions so that it can access vital bankruptcy financing.
On Thursday, it emerged that the Air Line Pilots Association (ALPA) and the Association of Flight Attendants (AFA-CWA) were working at breakneck speed to reach a compromise deal with Spirit management or face changes being forced upon by a bankruptcy court.
While details of the tentative agreements remain under wraps for now, it was reported that Spirit was seeking a total of $100 million in contract concessions – the majority of which would come from pilots.
Spirit Airlines was on a tight deadline to reach a deal with its crew union so that it could access additional Debtor-in-Possession financing and keep airplanes in the sky.
Debtor-in-Possession financing, or DIP for short, allows a company going through the Chapter 11 bankruptcy process to secure financing from new and existing lenders while court proceedings are still underway and the company is actively restructuring.
DIP financing agreements often come with a lot of terms and conditions and must be approved by a court. In the case of Spirit’s DIP deal, its lenders demanded the carrier rewrite union contracts to reduce the airline’s costs.
Last month, Spirit Airlines received approval from a New York bankruptcy court for up to $475 million in DIP financing, with $200 million of that amount made available immediately just to keep planes flying and the airline operating as normal.
A second tranche of financing was set to be approved today, but only on the proviso that the union deals had been struck. The financing was essential to keep the airline running.
Union bosses had been working frantically with the airline to agree on concessions with the airline or risk executives going to court and arguing that it couldn’t reach. Under Section 1113 of the Bankruptcy Code, the court could then impose changes without member ratification.
Following the news that tentative agreements had been reached with both unions, Spirit chief executive Dave Davis commented:
“These agreements reflect the shared commitment of our Team Members and principal labor unions in securing a successful future for Spirit, and we thank ALPA and AFA leadership for their partnership and collaboration.”
Davis added: “We’re grateful to our Pilots and Flight Attendants for their professionalism, resilience, and unwavering commitment to safety and our Guests as we work to build a stronger airline that Americans can count on for many years to come.”
In a statement, the airline said the savings from the agreed concessions were estimated to cover the next draw from its PIP financing, which will be $100 million.
So, while Spirit didn’t say it out loud, the airline had been demanding $100 million in contract concessions from pilots and flight attendants.
