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THE UNITED States-based low-cost airline re-submitted for bankruptcy for the second time in the past year. This step marks the company’s serious efforts to save its business amid heavy market pressure.
According to Bloomberg on Saturday (8/30), Spirit’s assets and debt were recorded in the submission document to the court to be in the range of US$1 to US$10 billion. The airline is negotiating with aircraft lessors, creditors, and other stakeholders.
This step was taken after the previous restructuring effort was deemed insufficient. Analysts assessed that Spirit was less aggressive in cutting costs, focusing only on tidying debt without addressing the core of the problem.
Spirit faces many challenges, including high labor costs and pressure from large airlines, such as Delta and United, that sell low-cost tickets. Additionally, the domestic market demand is weak. Unlike major airlines, Spirit does not have long-distance international flight routes that can offset the decline in domestic passengers.
Although Spirit emerged from bankruptcy in March, unstable market conditions have affected it again. Ticket prices are difficult to predict due to sudden ordering trends and excess seating capacity in the market.
Another problem is its fleet. Spirit currently has 215 Airbus aircraft, most of which are rented from third parties. The company will most likely try to return most of the rented aircraft to reduce costs, but negotiations with the lessors may be difficult.
One of the aircraft lessors, Aercap Holdings, has even sent Spirit a contract termination because the lessor considers the airline to have failed to fulfill its obligations. If the contract is terminated, Spirit will have to pay more than US$2 million in costs.
This situation also impacts employees. The Spirit union estimates that more employees will take voluntary leave and that the flight schedule will be reduced due to a decline in pilot positions starting in October and November.
Spirit is also said to be exploring partnerships with other low-cost airlines, such as Frontier. Spirit was previously almost acquired by JetBlue for US$3.8 billion, but the agreement was canceled by the court because it was deemed to violate competition rules. [sources/photo special]
