I can't even...its not worth it...

Good luck.

 

My take on the 7 slots is it’s 7 “prime time” slots that are hard to come by. If I understand correctly, there are slots a plenty at off peak times. So 7 peak slots from JB that are hard to come by plus 5 more off peak that we could have tomorrow and voila, 12 slots for a relatively meaningful SFO/LAX schedule.

 

It's a simplistic explanation, but usually how it shakes out. If my explication is wrong, why does stock in ch11 companies go to zero? Wouldn't the stock be MORE valuable in a post CH11 company that has gotten lower interest/better repayment terms on its debt?

 

.... And sometime in the future, the bondholders convert the debt to equity and then take the company public.

This is how debt holders cash out. Been there, done that.

S

 

So Spirit didn't really "wipe out debt" in their BK. In fact it wiped out very little debt. Spirit had about $5.1B in total debt (including leases) pre BK. Post BK it had $4.6B of debt (including leases). That $600M difference I will explain shortly.

CH11 bankruptcy is reorganization. Its a court supervised chance to reorganize debt. Its not an explicit "wipe out debt". Especially with a class of creditors known as "secured creditors". These people have lent money to the airline, but its "secured" by some asset on the balance sheet. Unsecured creditors do not do well in BK, but almost no one lends money to an airline without being secured. They could still venders they own money to, but then probably no other vendor would ever work with them. So they generally get paid. Same for employee wages.

The shareholders generally get wiped out, but their ownership is not debt to the company. Just because they are wiped out doesn't help the company. Also they aren't always wiped out completely.

With NK the largest debt was about $2.1B and it was a bunch of hedge funds that act as asset managers like Citadel, UBS, etc and they owned about 80% of the non-lease debt between the 4 largest bondholders. Not all loans to companies are bonds. For companies like Spirit, they are generally bonds. They have a coupon rate and some payment schedule. Generally with a ballon payment. Spirit had a large balloon payment coming due, and it was unable to get financing to cover that balloon payment, because its a high credit risk, and the interest would have been incredibly high. (i.e. a junk bond)

The bondholders for NK effectively could have done 2 things. They could have asked to court to sell assets so they could recoup their money. The problem is they would still have to share in the proceeds with all other creditors. The other thing is come up with a plan to keep NK operating. That's what they did.

The problem with the plan is that they did convert about $600M of their debt into equity, but they also made all their existing debt "senior secured" which means in a liquidation they get paid before all other creditors. They were able to do this because they now control the company and because as 80% of creditors, they effectively out voted the other creditors in the creditor committee. They also loaned cash to NK, but also that cash comes back to them if they want to liquidate in the future.

The issue with your primary debt holders running the business is that they aren't interested in long-term profits. They want their cash to reinvest in other ventures that can pay income to them. They earn their money by paying income to their shareholders. They are income hedge funds effectively. Some of their clients are retirement funds etc that need ongoing cash to pay retirement benefits etc.

So this is what I expect the Spirit bondholders to do:

Start selling assets. They will do this to reduce expenses and get rid of assets that are encumbered with high interest rates. They will also use this to generate cash. the problem with this is they use this cash to pay back their loans to the company. They also use this cash to pay back their "senior secured notes".

The problem is they could not have liquidated right now. Not possible. The leasing and airline industry can't handle that many planes all becoming available at the same time. They are going to try and mete it out to maximize their gains. You can't sell Airbus planes to airlines that have already deferred a bunch of their own deliveries. A good example are the planes parked in GYR. They are still there and still showing on the balance sheet. We will see when Q2 results are published if they have sold, but even so, those planes are encumbered with loans and they will net less than half of the gross proceeds.

At some point they will just put whatever is left for sale. But it won't necessarily be the entire company. They would still have a bunch of debt, so the easiest way is a CH 7 liquidation because now the acquirers just grab whatever assets they need. This is how Delta ended up with a bunch of domestic PanAm assets. United had purchase much of the PanAm assets in 3 separate sales in the mid-late 80s because PanAm was doing the same thing Spirit is doing.

Buying assets instead of the whole would likely garner more money than selling the company outright. Its unfortunate, but there isn't a core business to sell. Spirit unfortunately wasn't really a business, it was more of an income opportunity, and that opportunity is gone.

That's a long answer, and you correctly summarized what BK1 was about, but it was a quick in-and-out to just take control and reorganize the bondholders debt under terms that put the bondholders in control. The shareholders were not the target of the BK, they were victims.

Just like Spirit employees are victims here, unfortunately.

I'm going to end this discussion because this is the Jetblue forum and I don't really think Jetblue is in the same situation yet, but does have some challenges and hopefully learns from this.

 

Great post and thanks for the education. No we are not there yet but we certainly aren’t doing well. Financially we are much much better off than Spirit and have a lot of borrowed $ to keep the lights on for a long time while we (too slowly) make adjustments (route and most importantly outfitting our jets with 1st class). I think fleet wide 1st class will help a lot (I commute on Delta/Endeavor a lot and even when the loads are light, 1st class is nearly always full). The biggest problem with JetBlue is our arrogant management being way to slow to make meaningful adjustments. Being late to the show with 1st class as an example. Another is insisting on keeping our OPS in the liberal expensive NYC. Probably our biggest issue always has been and will be our crappy network. 2 bases in FL and 2 in the NE. Typical summer thunderstorms or a hurricane kills the OP there, Summer and winter storms in the NE destroys our operation there for days and we have NO Midwest base to use as a shock absorber. Our management simply doesn’t have a vision. Lots of Midwest cities could have become a great base (shock absorber) such as Nashville. But like i said, we have no vision and are always a day late and a dollar short. Maybe because they don’t seem to hire actual talent in the areas that need it. Just hire from within. So do they even know what right looks like when it pertains to running an airline? Apparently not. We all have hope but morale is in the toilet with no end in sight.