Spirit Airlines stock is falling to the ratio it’s considering Chapter 11

• Spirit Airlines may file for Chapter 11 amid major debt after a failed merger with JetBlue.
• The airline is about $3.3 billion in debt.
• A report of a potential bankruptcy filing sent Spirit shares lower in premarket trading on Friday.

Shares of Spirit Airlines tumbled in pre-market trading on Friday after a report that it may file for Chapter 11 bankruptcy protection.

In the wake of the failed merger with JetBlue Airways, Spirit has faced heavy losses, making it difficult to manage its $3.3 billion in debt, which includes $1.1 billion in secured bonds due next year, The Wall Street Journal Thursday evening.

The budget airline is also exploring restructuring options to ease some of its financial pressures, although no filing is imminent, the Journal reported.

The report pushed the carrier’s stock down as much as 36 percent in premarket trading on Friday. The stock is down 86% this year.

CEO Ted Christie said in an August earnings call that Spirit was in talks with advisers and bondholders about its debt.

While Spirit faces a turbulent future with a potential Chapter 11 filing, it’s not necessarily a death sentence for the airline. Rather, Chapter 11 allows companies to reorganize their debts while continuing operations. Other airlines have used this process to stay afloat.

Most recently, Scandinavian Airlines filed for Chapter 11 in the US in 2022 following a pilot strike. The airline went through a $3 billion restructuring plan to overhaul its fleet and raise cash while continuing to operate. The company emerged from bankruptcy in August.

In 2007, Delta Airlines filed for bankruptcy after cutting 6,000 jobs and cutting labor costs by $1 billion. By optimizing its Atlanta hub and increasing its international routes, the company successfully recovered from financial problems and remains one of the largest airlines in the US.

A potential bankruptcy filing could serve as a similar lifeline for Spirit’s management of debt and finances.

That came as Spirit raised its ticket prices in July, abandoning its ultra-low-cost model to boost revenue after suffering a loss of $143 million in the first quarter of this year and a of $193 million in the second quarter.

Spirit has been mired in annual losses since before the COVID-19 pandemic, despite a recovery in the travel industry, and continues to struggle with larger airlines that offer competitive fares.

The airline has cut routes, laid off pilots and reduced operational capacity by almost 20%.

When contacted by Business Insider, Spirit Airlines referred to Christie’s comments on the August earnings call but did not comment further.