Spirit Airlines, a low-cost carrier based in the United States, has recently implemented layoffs of 260 pilots as part of a strategic measure to enhance its financial stability. The airline has been facing losses for several quarters, with only one profitable quarter since the beginning of 2020.
To save money and improve its financial position, Spirit Airlines entered into an agreement with aerospace company Airbus to defer all aircraft orders that were scheduled to be delivered between the second quarter of 2025 and the end of 2026. These orders have now been pushed back to 2030-2031. As a result of this aircraft deferral and engine availability issues, the airline announced plans to furlough approximately 260 pilots effective September 1, 2024.
Ted Christie, the president and CEO of Spirit Airlines, expressed his pride in the dedication and resilience of the Spirit team but acknowledged the difficult decision to furlough pilots due to grounded aircraft and deferred deliveries. He emphasized the company’s commitment to protecting team members while also striving for positive cash flow and long-term growth prospects.
The planned aircraft deferral is expected to boost Spirit’s liquidity position by approximately $340 million over a two-year period. Additionally, the airline has entered into a compensation agreement with Pratt & Whitney, the manufacturer of its engines, which is anticipated to improve liquidity by an extra $150-200 million.
Despite these measures, Spirit Airlines faces operational challenges with some of its aircraft grounded due to issues with Pratt & Whitney engines. The company is actively evaluating its current financeable asset base and seeking opportunities to add more liquidity in the coming months.
The decision to defer aircraft orders and implement layoffs comes after Spirit’s potential merger with JetBlue fell through due to a federal judge ruling that JetBlue’s proposal violated antitrust laws. The merger could have provided a lifeline for Spirit, which has $1.1 billion in debt maturing in 2025. Analysts suggest that there is a risk of the airline failing to pay its debts due in September next year.
Fitch Ratings downgraded Spirit Airlines from B to B- in January, citing structurally weaker operating profits and increased turnaround risk following the blocked merger with JetBlue. The agency emphasized the need for Spirit to articulate a near-term plan to preserve liquidity, address refinancing risks, and improve profitability to avoid further negative rating action.
The cancellation of the merger agreement with JetBlue led to disappointment for both airlines. Spirit expressed its confidence in its future as a successful independent airline while JetBlue stated that terminating the agreement was the best path forward given the challenges in meeting necessary legal and regulatory approvals. JetBlue will pay $69 million to Spirit for dissolving the merger deal.
The failed merger would have created the fifth-largest airline in the United States, providing a real challenger to the dominant “Big 4” carriers – American Airlines, Delta, Southwest, and United Airlines.
Overall, Spirit Airlines is taking strategic measures to enhance its financial stability and overcome the operational challenges it faces. While the implementation of layoffs may be difficult, the company remains confident in its ability to thrive as an independent airline and looks towards long-term growth prospects.
