The future of Spirit Airlines is in jeopardy next week as President Donald Trump said the government could bail out the airline, as lenders to the struggling discount carrier explore a possible deal.
“We’re thinking about doing it, helping them, meaning releasing them, or buying it,” Trump told reporters in the Oval Office on Thursday.
“I’d like to be able to save those jobs. I’d like to be able to save the airline. I like to have multiple airlines, so it’s competitive,” Trump said.
The White House and major bondholders did not immediately comment or declined to comment on the matter.
Trump told reporters that “if the price of oil goes down,” the government “can sell.” [Spirit] for profit.”
The wind is expected to come from the collection of funds during the year, but that was before the US-Israeli attack on Iran led to a rise in the cost of jet fuel. Spirit lost about $28.3 million in February, according to the court filing, which was before gas prices skyrocketed — and so did travelers’ wallets.
Spirit, the budget carrier known for its bright yellow planes and bare-bones service that became a punch line for late-night comedians, has struggled to survive. Industry costs are rising post-Covid, as customer preferences have changed for more supply in global markets and locations.
Spirit has dramatically increased its costs, sold flights and reduced its network. Last May, Spirit operated 19,575 flights, according to aviation data company Cirium. This May, it works at 9,353.
Organized spiritual discovery by JetBlue Airlines was successfully challenged by the Biden administration, which the Trump administration said was damaging the Spirit.
“Spirit Airlines would be in stronger financial shape if the Biden administration had not recklessly blocked the airline’s merger with JetBlue,” a White House spokesperson said in an email. “The Trump administration continues to monitor the health and well-being of the U.S. aviation industry that millions of Americans rely on every day for essential travel and livelihoods.”
Will others follow?
Some industry members and analysts have suggested that other airlines, especially low-cost carriers, may seek similar assistance from the government.
Low-cost airlines met with Transportation Secretary Sean Duffy earlier this week to discuss rising fuel costs, people familiar with the matter told CNBC.
The Trump administration has clamped down on companies it sees as a national security interest, and companies ranging from auto companies to banks to the airline industry have all received bailouts in the past, but it’s rare for a government to bail out a single company.
Delta Air Lines again United Airlines makes up a large portion of the US airline industry’s profits, spending years and billions of dollars to successfully acquire price-sensitive customers willing to pay for reclining seats and other perks, as well as extensive international networks. Many other carriers, including Spirit, have tried to catch up in recent years.
“We wonder if the potential Moya deal could be the last step that other challenged carriers want in the future,” Barclays analyst Brandon Oglenski said in a note on Thursday.
A possible deal
The terms of the proposed agreement are for a $500 million loan that would eventually give the government a 90% stake in the Florida-based carrier, people familiar with the matter told CNBC. The potential plan would also put the government ahead of other investors, the people said, asking not to be identified to discuss the terms.
A hearing in the US bankruptcy case that will discuss the deal is likely to start on Monday, according to court comments on Thursday.
Mike Stamer, an Akin lawyer representing the bondholders in the bankruptcy case, confirmed in court Thursday that “in fact, we have received a copy of the term sheet” of the potential debt deal from the US government, a sign of how advanced the negotiations are.
The deal would also allow the US government to appoint a board member, a person familiar with the terms may have told CNBC.
Spirit’s labor unions are also seeking a deal.
“Any assertion that Spirit should be phased out will hurt employees, passengers, and our economy,” the Association of Flight Attendants-CWA said Thursday. “It’s not necessary and it makes sense – where a little help can prevent great harm.”
Spirit’s attorney, Marshall Huebner of Davis Polk, said in bankruptcy court Thursday that the loan will help Spirit get to “independent fighting status” but also may plan a merger.
Acquisition talks have failed before, however, most recently, with Frontier Airlines, which originally planned to merge with Spirit until a surprise all-cash offer by JetBlue.
Spirit’s challenges may not go away either, said Conor Cunningham, an aviation analyst at Melius Research.
“How deep does it want to go?” he said of Trump and a possible bailout deal. “$500 million is probably not enough.”
