Spirit Airlines has survived to fight another day after the embattled and heavily debt-laden budget carrier secured a $50 million lifeline at the eleventh hour.
The new funding came at the end of a crunch weekend, during which at least two major rivals had started prepping contingency plans just in case the airline suddenly ceased operating.
Rumors of Spirit’s potential imminent demise started to pick up traction on Friday as a crunch date in the Florida-based carrier’s Chapter 11 bankruptcy process fast approached.
Spirit entered its second Chapter 11 bankruptcy process in less than a year in August with the aim of restructuring its business, slashing costs, and (hopefully) returning to profitability as an independent carrier.
As part of these proceedings, Spirit has reached a deal with existing lenders and debtors to release up to $475 million in funding known as Debtor-In-Possession financing to keep the airline afloat during the Chapter 11 process.
The airline secured an initial $100 million draw from this DIP pot in October, and a second draw of $75 million was made last month.
For the third draw of $100 million, Spirit was required to meet several critical predefined conditions by Saturday, December 13. By Friday evening, however, the airline still hadn’t reached an agreement with lenders to meet these conditions.
Without an agreement, the tranche of funding couldn’t be released, and Spirit would, inevitably, have to stop operations with almost immediate effect.
On Monday afternoon, however, Spirit announced that it had managed to reach a compromise agreement with its lenders to amend the DIP agreement.
The amendment allows Spirit to take an immediate draw of $50 million while it continues negotiations on a standalone plan of reorganization or a strategic transaction.
In other words, the airline is in talks to continue reorganizing its business as has been the plan all along in this Chapter 11 process, but it is now also considering selling the company – perhaps in the form of an acquisition or potentially an asset sale.
“We are grateful to our lenders for continuing to support Spirit’s transformation, recognizing all the significant progress our team has made in recent months,” commented Dave Davis, Spirit’s CEO, on Monday.
“We continue to provide high-value travel options, which benefit American consumers whether they fly with us or not, and look forward to welcoming our Guests aboard throughout this holiday season and into the future.”
The demise of Spirit would be a worst-case scenario for American travelers, with experts warning that the disappearance of the ultra-low-cost carrier would lead to higher airfares across many key markets.
