Spirit Airlines plans to furlough 260 pilots in September as the company delayed orders for some of its aircraft by around five years in a bid to save money.
Spirit entered into an agreement with aerospace company Airbus to defer all aircraft orders that are “scheduled to be delivered in the second quarter of 2025 through the end of 2026 to 2030–2031,” the airline said in an April 8 press release. The decision was taken to improve the company’s financial position. Due to the aircraft deferral as well as engine availability issues, Spirit announced plans to “furlough approximately 260 pilots effective Sept. 1, 2024.”
“I am extremely proud of our dedicated Spirit team for their focus and resilience over the last few years. Unfortunately, we had to make the difficult decision to furlough pilots given the grounded aircraft in our fleet and our deferral of future deliveries,” said Ted Christie, Spirit’s president and CEO.
“We are doing everything we can to protect team members, while balancing our responsibility to return to positive cash-flow and thrive as a healthy company with long-term growth prospects.”
According to data from Stock Analysis, Spirit employed 13,167 workers by the end of December 2023. In November last year, the company offered voluntary exit packages to some of its salaried workers as part of cost-reduction measures.
The planned aircraft deferral is expected to boost Spirit’s liquidity position by roughly $340 million over a two-year period.
Meanwhile, Spirit is facing operational challenges with some of its aircrafts grounded following issues with Pratt & Whitney Geared Turbofan engines. Spirit has entered into a compensation agreement with Pratt & Whitney, which the airline claims will improve its liquidity by an extra $150–200 million.
In addition, the company intends to continue evaluating the use of its current financeable asset base and find opportunities to add more liquidity over the coming months, it stated.
“This amendment to our agreement with Airbus is an important part of Spirit’s comprehensive plan to bolster profitability and strengthen our balance sheet,” Mr. Christie said.
“Deferring these aircraft gives us the opportunity to reset the business and focus on the core airline while we adjust to changes in the competitive environment. In addition, enhancing our liquidity provides us additional financial stability as we position the Company for a return to profitability.”
Merger Fall Through
Spirit’s aircraft deferral comes as its potential merger with JetBlue fell off this year. A federal judge ruled that JetBlue’s proposal to buy Spirit for $3.8 billion violated antitrust laws.If the merger had succeeded, it could have provided a lifeline for Spirit, which has $1.1 billion in debt maturing in 2025. Analysts at Bank of America suggested there was a risk that Spirit may fail to pay its debts due in September next year.
While Spirit can look for another potential buyer, some experts believe a Chapter 11 bankruptcy of the airline is more likely.
In January, Fitch Ratings downgraded Spirit Airlines from B to B-, while keeping the outlook on the company negative.
“The downgrade reflects Fitch’s updated rating case forecasting structurally weaker operating profits,” the agency said. “Outlook reflects Fitch’s view that Spirit faces increased turnaround risk following a judge’s decision to block Spirit’s merger with JetBlue.”
“Fitch believes Spirit needs to articulate a near-term plan to preserve liquidity. The company must also address its September 2025 refinancing risk, and improve profitability to avoid further negative rating action.”
Fitch sees engine availability issues, overcapacity in leisure markets, and intense competition as key near-term profit headwinds for the airline. Overall, Fitch only expects “some limited margin improvement” in profitability this year.
Year to date, Spirit shares have fallen by over 70 percent as of April 8, 03:55 p.m. EST.
Spirit said it discussed various options with JetBlue for making the merger a reality, but eventually decided that regulatory challenges made the deal unviable. Per the agreement, JetBlue will pay $69 million to Spirit for dissolving the merger deal.
After the agreement fell through, Mr. Christie said that Spirit was “disappointed we cannot move forward with a deal that would save hundreds of millions for consumers and create a real challenger to the dominant ‘Big 4’ U.S. airlines,” referring to American Airlines, Delta, Southwest, and United Airlines.
“However, we remain confident in our future as a successful independent airline. We wish the JetBlue team well.” If the Spirit-JetBlue merger had succeeded, it would have created the fifth-largest airline in the United States.
