But then who is taking on Spirit’s debt, and why?

 

The people holding Spirits debts are at a crossroads after two bankruptcies. They continue to pump good money into the business to keep it afloat with the hope of finding recovery on that investment at the end of the day. Any merger or acquisition at this point would require agreement from a majority of the debt holders that they would get some percentage of the value they are owed. The value would have to be higher than selling off whatever is left as assets such as gates, offices, etc. At this point, no one is taking all of Spirit's debts except the current lien holders who are on the hook already. The latest $50 million extension was mostly funded by selling 2 gates at Ohare to American, so really no harm to have one last gasp to see if there is any interest. I think Spirit closes down just due to the burn rate of cash and the time any merger or acquisition would take.

If someone just gave you Spirit Airlines today with no debt, you would need $3+ million a day or $100 million a month just to keep the doors open. These numbers are not just cost, but include all the revenue being brought in by the company. You are basically signing up for a billion dollar a year boat anchor with no debt.

 

That's the point of bankruptcy... restructuring and ditching the debt.

Frontier could essentially do Section 363 where they'd simply buy assets. I think depending on the size and scope of the 363 sale, the pilots would most likely go with the aircraft.

It makes sense why Frontier is interested in Spirit, but I do think they'll have to dismantle a lot of their East Coast/FL presence to make it clear DOJ even if the acquisition could be framed as saving the company and preserving jobs.

 

BK doesn't "ditch debt". It allows reorganization of debt, which is mostly ordering of debt priority. But courts don't just wipe out debt to the detriment of creditors and just hand over those assets free and clear to companies. Spirit has been in BK twice now and except for some leases that were terminated there was little change in the total debt picture. In reality there is more non-lease debt now because of 2 rounds of DIP financing which was more than any debt converted to equity.

Also any 363 sale would have to have the cerditors agree to those, so they can't just buy a plane or some other asset for $1 and get it free and clear. There would have to be over 50% to require the purchaser to bring over employees, but if its over 50% they have to bring them ALL over if they are unionized. So this is actually a barrier for companies.

That's the ultimate problem here. If you want to buy Spirit, you have to choose between the entire airline, which includes all the debt, or just a few pieces.

 

That’s one of the BIGGEST leaps of faith I have ever read……..

 

Human sacrifice. Dogs and cats living together. MASS HYSTERIA.

 

I didn't mean to imply that one just ditches debt in Chapter 11. Been through a couple of those... but 363 sale may be more preferable than just buying the whole airline.

 

I’m still not convinced F9 is going to acquire NK. The scenario does not make sense from a financial standpoint. I am wondering if F9 is showing interest to peek at the internal operation of NK and see what moves fit the F9 business if NK fails. For a ULCC to take on substantial debt with a senior pilot group is pure suicide. If NK sheds costs and actually has hope of making money in the operation, there may be a chance. For the last several months, NK has continued to be a financial train wreck. I still see a very bad situation at NK that would jeopardize F9 if they rolled the dice.

 

Ok so you grow frontier while spirit goes away. It still amounts to an airline that’s not making money.

 

Q4 is supposed to be profitable. It’s hard to say what will happen further in the future if Spirt disappears. There are many levers that may be changed on the path to profitability.