Spirit Airlines on track for a $475 million bankruptcy lifeline

WHITE PLAINS, N.Y. — Spirit Airlines is making “massive progress” to revitalize the airline, the carrier’s restructuring lawyer Marshall Huebner said in a court hearing Tuesday.

The struggling budget airline has reached an agreement with some of its debtholders for up to $475 million in debtor-in-possession financing, a lifeline that bankrupt companies can use to continue operating, as well as $150 million from a major aircraft lessor, Huebner said. The agreements are subject to court approval.

Spirit last month filed for its second Chapter 11 bankruptcy protection in less than a year after high costs, weaker demand and a host of other lingering problems drove more than $250 million in losses from when it emerged from its first bankruptcy in March through June.

The carrier has been racing to slash costs and recently announced plans to cut 40 routes and furlough about one-third of its flight attendants. The airline is in talks with its pilots’ union and is seeking about $100 million in cuts from that group. Last month, Spirit said it was drawing down the entirety of the $275 million in its revolver.

Huebner, a partner at Davis Polk & Wardwell, said in U.S. Bankruptcy Court on Tuesday that people who are pessimistic about the struggling carrier’s turnaround prospects should “say less” and observe what it’s doing.

Spirit said on Tuesday that it now has immediate access to $120 million in liquidity after a motion was granted to use cash collateral.

Spirit is planning to reject leases on 27 Airbus narrow-body aircraft from Ireland-based leasing giant AerCap, 25 of them airplanes that are grounded or will be grounded for inspection due to a Pratt & Whitney engine defect, Huebner said in court. AerCap will pay Spirit $150 million as part of the agreement, under which Spirit would still plan to take delivery of 30 more airplanes, the company said.

AerCap did not immediately comment on the plan.

Spirit said it is also planning to reject 12 airport leases and 19 ground handling agreements as the carrier shrinks to cut costs, a plan the court approved.

Another hearing is scheduled for Oct. 10. If the debtor-in-possession financing is approved, $200 million would be available immediately.

“These are significant steps forward in a short period of time to build a stronger Spirit and secure a future with high-value travel options for American consumers,” Spirit CEO Dave Davis said in a news release later Tuesday. “While there’s more work to be done, we’re grateful to our stakeholders who have stepped up to support us during the restructuring.”

Senior secured noteholders at Spirit include Citadel Americas, Ares Management, AllianceBernstein, Arena Capital Advisors and Pacific Investment Management Company, according to a court filing.

Spirit’s competitors United Airlines, Frontier Airlines, JetBlue Airways and Allegiant Airlines have announced new routes in hopes of capturing Spirit’s customers. United CEO Scott Kirby went a step further, saying earlier this month that he expects Spirit to go out of business.

Spirit has struggled for years with an engine recall, a failed acquisition by JetBlue, higher costs and a shift in consumer tastes for more upmarket offerings. The Dania Beach, Florida-based airline has altered its business strategy to offer higher-end products in recent months.