Spirit Airlines’ future hangs in the balance over the next week after President Donald Trump said the government could bail out the company, as the struggling discount airline’s financiers evaluate potential deals.
“We’re looking at doing that, helping them, bailing them out or buying them out,” Trump told reporters Thursday in the Oval Office.
“I’d be happy if we could save those jobs. I’d be happy if we could save the airlines. I like having a lot of airlines and being competitive,” Trump said.
The White House and major bondholders did not immediately comment or declined to comment on the matter.
President Trump told reporters that “if oil prices go down,” the government could “sell (Spirit) and make a profit.”
Spirit was expected to emerge from bankruptcy in the middle of this year, but that was before the U.S. and Israeli attacks on Iran caused jet fuel costs to skyrocket. According to court filings, Spirit had an operating loss of nearly $28.3 million in February, before rising fuel prices hit airlines and travelers’ wallets.
Spirit, the iconic low-cost airline known for its bright yellow planes and bare-bones service that has become the punchline of late-night comedians, is struggling to survive. Since the coronavirus outbreak, costs have ballooned for the industry as customer tastes have shifted toward higher-end products and international destinations.
Spirit aggressively cut costs, sold aircraft and downsized its network. Last May, Spirit operated 19,575 flights, according to aviation data firm Cirium. As of May this year, 9,353 units were in operation.
Planned acquisition of Spirit by jet blue airlines The Biden administration’s challenge was successful, but the Trump administration said it had hurt Spirit.
“Spirit Airlines would be on even stronger financial footing if the Biden administration had not recklessly blocked its merger with JetBlue,” a White House spokesperson said in an email. “The Trump Administration continues to monitor the condition and overall health of the U.S. aviation industry, which millions of Americans rely on every day for essential travel and livelihoods.”
Will others follow suit?
Some industry insiders and analysts have suggested that other airlines, particularly low-cost carriers, may also seek similar support from the government.
The low-cost carrier met with Transportation Secretary Sean Duffy earlier this week to discuss the current rise in fuel costs, a person familiar with the matter told CNBC.
The Trump administration has taken stakes in companies it deems to have national security interests, and while companies ranging from automakers to banks to the entire airline industry have been bailed out in the past, it is highly unusual for a government to bail out a single company.
delta airlines and united airlines It accounts for most of the U.S. airline industry’s profits, and it has spent years and billions of dollars trying to win over less price-sensitive customers who are willing to pay for larger seats and other perks, as well as a wide international network. Many other carriers, including Spirit, have been trying to catch up in recent years.
“We believe a potential deal with Spirit could be the last resort that other troubled airlines seek in the future,” Barclays analyst Brandon Oglensky said in a note Thursday.
Possibility of trading
The terms of the tentative deal include a $500 million loan and could ultimately give the government a 90% stake in the Florida-based airline, people familiar with the matter told CNBC. The potential plan would also put the government ahead of other investors, the people said, requesting anonymity to discuss the terms.
A U.S. Bankruptcy Court hearing to discuss the potential deal could be scheduled as early as Monday, according to Thursday’s court comments.
Mike Stamer, an Aiken lawyer representing bondholders in the bankruptcy case, acknowledged in court Thursday that he has “actually received a copy of the term sheet” for a potential deal involving loans from the U.S. government, indicating how far along negotiations are.
The agreement also allows the U.S. government to select board members, a person familiar with the potential terms told CNBC.
Spirit’s union is also pushing for an agreement.
“Claims that Spirit should go into liquidation will only harm workers and passengers and further strain the economy,” the Flight Attendants Association-CWA said Thursday. “It’s unnecessary and mean. A little help could have prevented massive damage.”
Spirit’s lawyer, Marshall Huebner of Davis Polk, said in bankruptcy court Thursday that the loan will help Spirit become an “independent fighting force” and could also set the stage for a possible merger.
However, acquisition negotiations have failed in the past, most recently with Frontier Airlines. Frontier Airlines was originally scheduled to merge with Spirit until JetBlue made a sudden all-cash offer.
Conor Cunningham, an airline analyst at Melius Research, said Spirit’s challenges may also persist.
“How deep does he want to go?” he said of a potential bailout deal with President Trump. “$500 million is probably not enough.”
