In my opinion, this is exactly right … It wasn’t new DIP financing, just Spirit maxing out the revolver before filing. Keeps the lights on for now, but without real DIP financing the leverage shifts straight to the lessors and creditors.

 

I seem to recall the current owners, the previous bondholders, were against an acquisition by Frontier. I wonder where the leaseholders and creditors stand this time around.

My default assumption is the super majority of leaseholders and creditors want a liquidation. As Scott Kirby says, he can do math, so I imagine they can too. Just a question of what the timeline is before Spirit loses control of the bankruptcy and the creditors/leaseholders force it into chapter 7 liquidation.

Sorry guys, rooting for you all to land on your feet somewhere.

 

https://www.yahoo.com/finance/news/u...144611473.html

I found the article you were referencing

 

Be careful though, keep jacking up that pay and pretty soon you’re going to be flying single pilot with a lap dog as an FO or certified FA. But I can appreciate the spirit of your wish. Ironically though spirit had a pretty good contract.

 

Yeah spirit contract was ok. But we have to keep that contract in the perspective of Spirit's future liquidation. Unless the bankruptcy immediately spirals into chapter 7, they will try to take concessions. You can't concede anything - Spirit will liquidate and we can't have concessions dragging down the industry standard at career destinations. Full pay last day.

 

What do the creditors get in a liquidation? Leaseholders get all their jets which presumably they will have to find homes for. Some but not all will probably find homes quickly but then they hold the bag on the rest.

The CEO jets we have mortgages on go back to the banks which they now have to find homes for. No one wants them otherwise we would have sold them for cash. So bank is holding the bag.

Now, our current masters of PE we owe $2B+ to get what? They have a an HQ that’s worth $400m? What else?

Doesn’t seem like there is much value in a liquidation. Now if I was a debt holder and I could somehow convert my debt into equity of a viable company that would have some value. Frontier? Maybe not viable for short or long term equity growth to make their money back. JetBlue? Short run struggles but long run quality product that could have value with added synergies and increased scale. Southwest or Alaska obviously good choice’s depending on their horizon for selling their shares.

I have clue what Im talking about but it sure seems to me that there isn’t much value to many stakeholders in forcing a liquidation bc there just aren’t parts to sell off. The only value is in the operation itself but the debt would have to be converted to equity to make it viable for a suitor

 

The current examples we have of breeze and avelo don’t point to that being true. Or frontier.

basic economy looks like it won that battle.

there isn’t a ready supply of new (or used) low cost airframes. There isn’t a particular excess of low cost pilot labor. There isn’t tons of unused capacity at desirable airports. I don’t see economic inefficiency to exploit

 

The leaseholders just want the planes back. They don't care, need or want to liquidate Spirit. The BK was filed to keep the lessor from taking the planes. NK can't just use BK to sell those planes to facilitate some value transition into another company. Leaseholders don't need a liquidation to take their planes back. There is strong leasing demand for planes worldwide. Especially in Asia (according to Aercap, the lessor). Spirit also owed $72M in fees to the lessor for cancelling planes they were supposed to get in 2027 and 2028 and is in violation with its lease agreement from a bunch of existing leases.

The creditors have secured debt. I'm not sure why they would want to just "roll the dice" and give that up for some equity in the next possibly bankrupt airline that can just wipe out their equity with a BK. Spirit has about $400M cash plus the $275M in revolving credit they just pulled. I imagine that much of that would just go to the bondholders, plus the proceeds from whatever assets they could sell.

If Spirit management came to you and said "We won't pay you any money but we want you to keep flying planes and we will give you stock in Frontier that's worth 19% of your current monthly wages and you can't liquidate it for a year, would you take the deal?

 

I disagree with this. Spirit pilots taking paycuts isn't going to drag down the industry. If there was a credible case to be made that a short term paycut could lead to a better future, it would be worth the risk for those pilots that aren't interested in leaving. The issue is that Spirit's profit margin is negative 13% and even if pilots flew for free it would still be negative. Pilot wages are probably only 8% of Spirit's total costs, So even at a 50% paycut you'd only save 4% and the company would still be losing 9%, all other things held equal.

The real issue is that Spirit is in a liquidity crisis, and that lack of liquidity is putting Spirit in default of it lease covenants, which is making them in default of its leased planes. Just because Spirit hasn't "missed any payments" to Aercap, doesn't mean they are in compliance with their lease agreement.

 

Yeah I think basic economy won for the time being. If all else is roughly equal, economy of scale matters. For operational efficiency as well as mileage points.

Also in this industry established incumbents have huge structural advantages.

Pendulum will swing eventually, labor costs will rise and then some black swan will make that unsustainable and a startup or two will make some inroads.

Allegiant, Breeze, etc might be more niche business models, as opposed to startups that have any potential to grow into the traditional legacy/SWA spaces.