Exactly. Both sides have to be addressed.

 

Well, you're looking at the positive side of the question (from the buyer who would get assets without the bad debt that comes with it)..

The counter point would be there's a set of airlines that will realize they won't be the winning bidder for the assets.. if you want certain planes from Spirit, or maybe pilots, or gates, or slots in Newark, or whatever you have your eyes on.. if you realize your best bid will *not* win for the assets you want.. it creates incentives among those non-winners to try to outmaneuver the competition that will beat them at the bid..

Of course the catch there is, if you buy Spirit whole to get in front of bidders who would beat you at liquidation auction, you'd have to be big enough to handle the debt that comes with that play.

 

It seems that you suggest NK is more likely to be pieced out instead of bought as a whole. I can see that as well. My positive outlook for success is with hope that NK jobs would be saved without liquidation. For this to happen, NK needs to stop the severe bleeding. Some on this thread think DIP financing will just continue forever. Typically financing is tied to assets. NK is not a good financial risk at all. Bleeding needs to stop from wages and benefits as well as increased efficiencies within the airline operation. Revenues also need to increase but prices are very sensitive and the BK fear for consumers is real as well as the willingness for consumers to endure the NK product itself. This is a tough road where it is easier to cut wages and restructure route systems than predict consumer behavior. Both need to happen though.

 

That was the running theory of the individual I replied to, seemingly, but I was making a point that there's another side to that coin..

Let us say the standalone plan is totally dissolved (a given hypothetical here), the default date without a merger announcement is Dec 13th.. so where do we stand in that case? Well, as I understand it, I'm sure a bankruptcy expert would correct me if I'm wrong, but right now we're in the window where Spirit can announce a merger on their own terms, and the current board of directors can redeem some pennies of value from the operation.

Next step, as I understand it is we go into default by Dec 13th for not meeting funding terms, that would grant Debtors in Possession ownership of the airline. Banks don't run an airline. So they'll go into 363 sale process. At that point, the judge would accept bids from anybody who wants to buy the airline whole. If there's nobody to bid, or if all bids come in under the value of "parting out" the airline, then the debtors would choose to break up and liquidate Spirit in the traditional sense of dissolving the airline..

So when the original post said the vultures are circling to buy us in a debt-free part out sale, I was pointing out that only one airline could win the assets every airline wants in each part out. So if you have your eyes on assets Spirit has, and you realize that you'll be second bidder for every part you want, you have incentive to step in and buy the whole thing. Even if it's a "hold your nose" kind of bid, you have to get in front of the airlines that will outbid you for the assets you want..

So I was suggesting there is incentive for somebody to merge on Spirits terms (if the price was right).. or buy the whole in a 363 sale, but even then, the gamble is a bigger competitor out buying you.. regulators would, I'd think, lose a lot of leverage to block a wholesale 363 auction.

 

Looking at F9s hiring plans… a merger doesn’t seem to be in the works. Probably better to have pilots on year 1 pay as they take over routes

 

That's taken into account. There is only $250M in unrestricted cash. I added all that DIP and Aerocap money that was listed in the court docs in. Also assumed only $90M cash burn. Cash burn is only operational and not other cash.

Also some of that revenue/cash flow included selling assets. $150M of it was "sale of assets". Without that, cash burn is much more since its included in revenue and net unrestricted cash.

If in fact these changes do indeed lower cash burn, they aren't shown yet in October or November because the employee concessions are not in place yet. How long will it take to get the full benefit of the concessions and cuts? How bad will revenue be hurt as well? September revenue was substantially less than August. If you halve that, but still have all the non-lease debt, you now have a higher debt ratio to cover with less revenue.

 

Don't forget to add the 30 million they just got for selling a couple gates at O'HARE to American Airlines. https://document.epiq11.com/document...=SPJ&source=DM

 

Well, you can't just use F9 as one example for the whole industry, you'd have to consider everybody.. but using them as a great example..

If F9 wanted, let's say, Newark gates and landing slots, and United wants them too, would F9 win such a bid? If they wanted to part in the Airbuses that we own, and say DL wanted them too, would they win that bid? If they just wanted to take over our leased planes at renegotiated rates, and the lessors can also sell to carriers in Europe, Africa, Asia.. would F9 win that bid? No.. and even just assets like pilots.. say they somehow bought every Spirit plane and wanted to "new hire" every Spirit pilot.. when AA, DL, UA, AK, and WN fight for the best pilots.. does F9 even get pilots they want if they got the planes? No..

So if the plan is to "takeover" Spirits flying or grow organically, where does that come from if they win no bids for Spirits assets? Get outbid by someone for everything?

So again, don't consider this from the view of one boardroom.. only one person can win each asset.. given the number of US airlines that may bid for, certainly our high value assets, all I've said is it creates incentive to merge instead of losing every bid for every asset.. and consider more than just one airline would have to be thinking about that right now..

 

Really well though out and articulated Ben.

I think what would be the driving force against a full on acquisition would be that all the assets are worth different amounts to different airlines. Just like American wanted gates in ORD, so they bought some from Spirit. American didn't want to buy the whole airline. They just wanted one thing, more ORD gates I'm sure United also wanted those gates and maybe even Delta, but American was willing to pay more. I don't know that any one thing is so valuable that the entire airline would be worth purchasing.

Bottom line is that if F9 wants EWR gates, and can't afford to outbid United for those gates, they aren't going to be willing to outbid everyone else that would then purchase the entire entity just to get access to those gates or whatever assets they want.

Also I am aware that there are people that think of the magical "363 sale" that someone else will get get everything and wipe out all the debt, but the creditors have to approve that. Given that Spirit just sold two gates at ORD to AA for $30M ($15M each) that leads me to believe if the remaining assets could be sold for say $1.5B (I'm guessing), meaning the creditors would be better off financially to just sell everything piece meal instead of letting someone else buy it cheap and allow the debt that's secured by those assets to be wiped out. The "pennies on the dollar" crowd are leaving out that a liquidation might only give them 75 cents on the dollar but a 363 asset sale only 10 cents. If you were one of the creditors would you let the assets go just to keep the entire airline going? Why would you care. You wouldn't have an ongoing interest either way. You certainly wouldn't want any Frontier stock that would get wiped out in their BK.

The ORD gate sale, which I didn't know about, seems like a canary in the coal mine. It signals that the "parts are greater than the whole" and makes it less likely that someone else would want to come in an inherit a fragmented network.

 

Here's the problem...you can't add that $30M to Spirit's cash. Its a net zero. All Spirit did was give up 2 gates in ORD for no net gain in cash.

The docs state that the $30M sale proceeds are being used to pay off part of the $475M DIP financing that was just approved. It means the creditors loaned in money to give Spirit runway, but then is selling assets to get back a portion of their $475M. So Spirit doesn't have $30M more. So now the DIP investors are only owed $445M, effectively. Its not $475M plus $30M of cash.

I wonder how quickly they will keep selling assets to recoup their $475M and what will be left over once they get that money back?

The only win here is Spirit owes $30M less in debt, but it also lost two pretty good gates in ORD because of it that its not going to get back.