Last year, Spirit Airlines filed for bankruptcy protection, but quickly made it clear that it did not intend to make sweeping changes that would be felt by its customers, employees or creditors. Just a few months later, it seems like that decision was ill-advised.
Last week. Spirit Airlines issued a pretty ominous warning when it filed paperwork with the Securities and Exchange Commission (SEC) stating that “there is substantial doubt” about its future, indicating that its status has not really improved since filing for bankruptcy last year.
However, it sounds like this all could have been avoided if the airline hadn’t made a significant mistake in its strategy.
Spirit Chose a ‘Surgical’ Approach
During the first day of its bankruptcy trial back in November, Spirit Airlines lawyer Marshall Huebner claimed that nothing would change for “99.9%” of its customers, employees, and creditors.
Huebner explained that the company only filed for bankruptcy in order to implement a deal with a small number of bondholders who had agreed to swap their debt for stock, allowing the airline to avoid the usual headaches that come along with bankruptcy.
“And so I do want to stress at the very outset the extraordinarily surgical nature of what we intend to do here,” Huebner told US Bankruptcy Judge Sean Lane during a hearing in New York, according to Bloomberg.
The Strategy Did Not Work
In hindsight, it seems like Spirit Airlines should have been a little less “surgical” in its approach.
Last week, Spirit filed paperwork with the Securities and Exchange Commission (SEC) stating that “there is substantial doubt” about its future.
“Because of the uncertainty of successfully completing the initiatives to comply with the minimum liquidity covenants and of the outcome of discussions with Company stakeholders, management has concluded there is substantial doubt as to the Company’s ability to continue as a going concern within 12 months from the date these financial statements are issued,” the company said.
While the company’s CEO offered a bit of an explanation a day later, it’s pretty clear that the company’s situation has not greatly improved since its bankruptcy filing last year.
Spirit Made a Major Mistake
While Spirit Airlines may have attempted to solve its financial woes without making drastic changes, it seems like that was ultimately a mistake.
“Spirit didn’t use all the tools available under Chapter 11 to fix the business,” said bankruptcy attorney Brett Miller, who represented the official committee of unsecured creditors, during the restructuring case, via Bloomberg. “There were no negotiations with vendors, labor or aircraft lessors, which typically occur as part of the go forward business-plan process.”
Now, it looks like Spirit Airlines might have to resort to some of those more drastic measures. However, the situation has now become more dire.
