Spirit Airlines Q3 2024 report showed that the airline’s cash position and debts have worsened, with the company's management warning that there was a substantial doubt about the airline's ability to continue as a going concern.
Looming debt payments
Spirit Airlines' Q3 Securities and Exchange Commission (SEC) filing showed that as of September 30, the company had $593.6 million of cash, cash equivalents, and restricted cash.
While during the remainder of the year, the carrier’s long-term debt repayments will be $33.5 million, in 2025, Spirit Airlines will have to repay $1.1 billion of its long-term debt, with total debt principal payments between Q4 2024 and 2029 and beyond being $3.2 billion.
The carrying value and estimated fair value of its long-term debt were $3.2 billion and $2.9 billion, respectively. At the beginning of the year, Spirit Airlines’ long-term debt-carrying value and estimated fair value were $3.4 billion and $3.2 billion, respectively.
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Still, as expected, Spirit Airlines ended the period with a net loss. Its three-month net loss was $308.2 million, while the nine-month net loss was $643.8 million, both significantly worse than during the respective corresponding periods last year.
The airline’s shares should be delisted on November 28 following its voluntary Chapter 11 proceedings, which the carrier announced on November 18. According to Spirit Airlines, trading of its stock was suspended immediately.
Slightly reducing overall capacity
The quarter’s unaudited operating statistics showed that Spirit Airlines had slightly reduced its capacity, measured in available seat miles (ASM), by 1.2% year-on-year (YoY). Demand, measured in revenue passenger miles (RPM), crept up slightly by 0.2% YoY.
Compared to Q3 2023, Spirit Airlines operated 5.9% more aircraft during the three-month period (212.4 versus 200.5), with the airline’s fleet measuring 217 aircraft as of September 30.
This included aircraft impacted by the accelerated removals and inspections of the Pratt & Whitney PW1100G engines, also known as the Geared Turbofans (GTF). The PW1100G engine powers all 91 Airbus A320neo and 26 A321neo Spirit Airlines aircraft, ch-aviation data showed.
“The temporary removal of engines from service is expected to continue through at least 2026. We are currently discussing arrangements with Pratt & Whitney for any of our aircraft that remain unavailable for operational service after December 31, 2024.”
Meanwhile, the carrier ended Q3 with revenues of $1.1 billion and operating expenses of $1.4 billion. While both numbers were relatively flat YoY, Spirit Airlines was also loss-making in Q3 2023, meaning that its losses have continued.
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Between January 1 and September 30, Spirit Airlines earned $3.7 billion in revenue and ended the period with $4.39 billion in operating costs, which showcased a widening gap between its ability to earn revenue (January 1 to September 30, 2023: $4 billion) and control costs (January 1 to September 30, 2023: $4.32 billion) YoY.
In Q3, the average yields fell to 10.66 cents, as did its average revenue per passenger per segment, which dropped from $116.43 to $104.75. However, a significantly lower (15.8%) average fuel cost per gallon helped its quarterly results.
Previously, Spirit Airlines delayed the publication of its Q3 report. In an SEC filing on November 13, the airline said that its primary focus was its liquidity and negotiations with holders of its senior secured notes due 2025 and convertible senior notes due 2026.
“The negotiations, with a supermajority of the Noteholders, have remained productive, have advanced materially and are continuing in the near term, but have also diverted significant management time and internal resources from the Company’s processes for reviewing and completing its financial statements and related disclosures.”
Spirit Airlines argued that all of its efforts have been diverted to ensuring it had enough liquidity to survive in the short term.
Going concern about its future
The voluntary Chapter 11 proceedings were initiated by Spirit Airlines on the same day as it signed a restructuring support agreement with the majority of its creditors.
In the filing, the airline detailed that the agreement was signed with holders of around 78.6% of its senior secured notes due 2025, 84.1% of its convertible senior notes due 2025, and 1% of its convertible senior notes due 2026.
The agreement, if approved by the US Bankruptcy Court for the Southern District of New York, will result in the equitization of $410 million of senior secured notes and $385 million of outstanding convertible notes.
In addition, Spirit Airlines has signed a backstop agreement for $350 million of new cash and a debtor-in-possession (DIP) financing commitment for $300 million.
“Subject to certain exceptions and conditions, Spirit will be obligated to prepay the obligations [of the DIP – ed. note] thereunder with the net cash proceeds of certain asset sales, with casualty insurance proceeds, extraordinary receipts and the proceeds of certain indebtedness.”
Photo: Spirit Airlines
At the same time, Spirit Airlines said that it has been impacted by an increasingly challenging pricing environment. The airline also pointed out the expected short-term growing pains of its newly announced operational changes, which will result in revenue trending downward.
In a presentation that it attached to its Chapter 11 bankruptcy filing to the SEC, Spirit Airlines outlined its plans to go more up-market, targeting premium leisure travelers with an improved in-flight experience.
“However, for the duration of the Chapter 11 Cases, the Company’s operations and ability to develop and execute its business plan, its financial condition, liquidity and its continuation as a going concern are subject to a high degree of risk and uncertainty associated with the Chapter 11 Cases.”
Thus, based on its current status and management’s current plans, which could still change, including any cost-cutting measures and the sale of its owned aircraft, there was “substantial doubt about the Company’s ability to continue as a going concern.”