Spirit Airlines Inc SAVE is reportedly in discussions with bondholders regarding the terms of a potential bankruptcy filing. The budget airline is exploring restructuring options following a failed merger with JetBlue Airways Corporation JBLU.

What Happened: Spirit is considering a Chapter 11 filing as it grapples with significant financial challenges. The airline is also looking into restructuring its balance sheet through an out-of-court transaction, reported The Wall Street Journal on Thursday, citing people familiar with the matter.

However, according to the report, recent discussions have primarily focused on securing an agreement with bondholders and creditors to support a bankruptcy filing.

Spirit is facing mounting pressure due to its $3.3 billion debt load, which includes over $1.1 billion in secured bonds maturing within a year. The airline must refinance or extend these notes by Oct. 21, as per its credit card processor’s deadline.

CEO Ted Christie mentioned in August that the company is in active discussions with bondholders’ advisers to address these maturities.

“Before we get into the results, I want to note that we are engaged in productive conversations with the advisors of our bondholders to address the upcoming debt maturities. Because those conversations are ongoing, we are not going to go into detail or take any questions on this topic or speculate on potential outcomes. Needless to say, it is a priority, and we are focused on securing the best outcome for the business as quickly as possible, while staying focused on driving performance and implementing our new travel options and elevated guest experience,” Christie said in the August earnings call.

Spirit’s financial woes have been exacerbated by its inability to turn an annual profit since before the COVID-19 pandemic. The airline’s operational footprint is shrinking, with plans to reduce capacity by nearly 20% in the fourth quarter.

Additionally, Spirit has been affected by the recall of Pratt & Whitney engines, grounding part of its fleet and leading to pilot furloughs.

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Why It Matters: The potential bankruptcy filing by Spirit Airlines comes in the wake of a terminated merger agreement with JetBlue Airways.

The two companies had initially planned a merger valued at $3.8 billion, which was expected to create a strong low-fare competitor in the airline industry. However, the merger was called off in March due to unmet conditions, impacting Spirit’s strategic plans.

Meanwhile, JetBlue has been focusing on its turnaround strategy, bolstered by rising air travel demand and lower fuel costs. Analysts have upgraded JetBlue’s stock, projecting a significant liquidity position by 2026.

Spirit Airlines has also faced regulatory challenges, such as a temporary block on a rule requiring airlines to disclose fees upfront. This legal development briefly boosted Spirit’s stock in July.

Price Action: Spirit Airlines Inc. stock closed at $2.24 on Thursday, down 3.45% for the day. In after-hours trading, the stock plummeted by 30.38% to $1.56. Year to date, Spirit Airlines has fallen significantly, down 86.30%.

Meanwhile, JetBlue Airways Corporation ended the day at $6.39, down 2.74%. In after-hours trading, the stock rose by 4.85%. Year to date, JetBlue has gained 21.25%, according to data from Benzinga Pro.

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Photo via Wikimedia Commons

This story was generated using Benzinga Neuro and edited by Kaustubh Bagalkote