Embattled ultra-low-cost carrier Spirit Airlines is reportedly in talks with the alternative investment firm Castlelake as it continues to search for a way out of bankruptcy.
Castlelake is what is known as an ‘asset-based’ investment firm, which means that it could provide vital financing for Spirit in return for the Florida-based carrier’s physical assets like aircraft, buildings, airport gates, and equipment.
Spirit in talks with Castlelake
Last August, Spirit Airlines filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the Southern District of New York in a last-ditch attempt to massively restructure its business and stop the airline from falling into liquidation.
Over the last four months, a significant amount of progress has been made in slashing Spirit’s ballooning costs and renegotiating debts with its creditors and investors, although a clear path out of bankruptcy protection remains elusive.
Late last year, Spirit reached a make-or-break deal with lenders to unlock a lifeline in the form of additional funding, although the deal was contingent on Spirit exploring opportunities for a ‘strategic transaction.’
In other words, a potential takeover.
It has now emerged that a potential partner for a strategic transaction is Minneapolis-based Castlelake, an alternative investment firm that specialises in asset-based financing.
Castlelake’s history in the aviation industry
Castlelake was founded in 2005 and now manages $22 billion of assets across a portfolio of businesses, including a significant number in the aviation industry.
Last year, Castlelake created a specialist aviation lending business called Merit AirFinance, which provides “debt capital to airlines and leasing companies for new and used aviation assets.”
Merit AirFinance says it provides financing solutions for airlines in return for new and used commercial aircraft and aircraft engines.
Unlike a private equity firm, investors like Castlelake don’t necessarily seek to buy, restructure, and then quickly sell a business at a profit. Castlelake would effectively take over Spirit and decide the airline’s long-term future.
Could a merger with Frontier also be on the cards?
If reports are to be believed, Spirit isn’t putting all its eggs in one basket, as the airline has also reportedly been in talks with rival low-cost carrier Frontier over a potential merger.
Spirit is believed to have reopened talks with Frontier last December, shortly after securing a $50 million financing lifeline.
The two rival airlines have discussed a potential merger on several occasions. The first potential merger was announced in 2022, but the deal fell through when Spirit’s shareholders accepted a rival bid from JetBlue.
That deal was blocked by a federal judge in 2024, reopening the possibility of a merger with Frontier, but talks in that year and 2025 collapsed when Spirit accused Frontier of undervaluing its business.
Flights continue to operate as normal (for now)
For now, at least, Spirit’s flights continue to operate as normal. Passengers can continue to book flights, and employees are being paid as normal as the Chapter 11 process continues.
But what the long-term future of Spirit is remains to be seen. Spirit entered the Chapter 11 process with the aim of emerging as the same airline… just a little smaller.
A tie-up with Castlelake could be Spirit’s best shot at seeing this vision actually happen.
