Spirit Airlines is considering restructuring options to address its substantial debt after a suit from the Biden administration led a federal judge to halt a planned acquisition of the company, The Wall Street Journal reported Thursday, citing people familiar with the matter.
The budget airline owes around $1.1 billion in debt that is due by September 2025, having already sold more than two dozen planes in early January, immediately leasing them back, to pay down another $465 million in debt that was previously held, according to the WSJ. The consideration over restructuring from Spirit follows a federal judge on Tuesday blocking a proposed $3.8 billion acquisition of the company by JetBlue Airways after an antitrust lawsuit from the Department of Justice (DOJ). (RELATED: Cloud Hangs Over Commercial Real Estate As Trillions In Debt Set To Come Due)
“We are not (yet) predicting an immediate [Spirit Airlines] chapter 11 [bankruptcy] filing, just an acknowledgment that we cannot reasonably identify a viable return to profitability any time soon,” analysts at JPMorgan Chase wrote following the judge’s action on Tuesday, according to the WSJ.
Spirit has suffered increasing losses in the last three years as other competitors dropped their prices, snatching customers from the budget airline, according to the WSJ. Spirit has also had trouble adjusting to the rising labor costs in the industry following a new contract with pilots, boosting pay by an average of 34% over two years.
Spirit and the Air Line Pilots Association union came to the deal amicably in January 2023 amid growing competition for pilots in the airline industry, according to the WSJ. The deal noted that negotiations would restart if JetBlue’s acquisition was not approved by regulators.
If you had bought $10,000 worth of Spirit Airlines $SAVE 1 week ago and held to today you’d currently have $3,905 pic.twitter.com/GtoerV7bYm
— Evan (@StockMKTNewz) January 17, 2024
The DOJ suit was filed in March 2023 in an attempt to preserve the independent airline and maintain competition in the ultra-low-cost carrier market, with the government claiming that a merger with JetBlue would raise prices for flyers by as much as 30%. The acquisition would have merged the 7th and 6th biggest airlines and created the 5th biggest.
“While we are disappointed with this outcome, we are confident in our strengths and strategy,” a Spirit spokesperson told the Daily Caller News Foundation. “We remain committed to delivering affordable fares and great service to our guests and providing excellent opportunities to our team members. Spirit has been taking, and will continue to take, prudent steps to ensure the strength of its balance sheet and ongoing operations.”
The DOJ claims that Spirit has a “unique and disruptive role” in the airline industry, which brings prices down more broadly. Spirit previously attempted to merge with another budget airline, Frontier, in July 2022, but that deal was rejected by shareholders.
The Biden administration has taken aim at a number of large companies over antitrust concerns, including tech giants Google and Meta, over claims of being industry monopolies. The Federal Trade Commission under Biden also unsuccessfully tried to prevent Microsoft from acquiring video game company Activision for $68.7 billion.
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