Spirit Airlines: Crash-landing into Chapter 22

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Introduction: Spirit Airlines

In restructuring, there is an uncomfortable truth that practitioners rarely say aloud: sometimes a bankruptcy solves the wrong problem. Spirit Airlines’ journey through Chapter 11 twice in under a year is a case study in precisely this failure. When the nation’s largest ultra-low-cost carrier filed its first Chapter 11 petition in November 2024, it executed a textbook prepackaged restructuring: bondholders converted $795mm of debt to equity, $350mm  in new equity was raised, and the company emerged in a brisk 87 days with a cleaned-up balance sheet. The problem was that the balance sheet was not what was killing Spirit. By August 2025, just five months after emergence, Spirit was back in bankruptcy court, a “Chapter 22”, this time facing the operational demons it had ignored the first time around: an oversized fleet, unsustainable lease obligations totaling $7.4bn, excess capacity in a softening domestic market, and a cost structure that left no margin for error.

This second case, supported by a $475mm DIP facility and a restructuring support agreement filed on March 13, 2026, contemplates a fundamentally different airline: a fleet of 76–80 aircraft (down from 214), debt and lease obligations slashed to roughly $2bn, and a network concentrated on four core markets. The Spirit story is a cautionary tale for every restructuring professional who has watched a sponsor or debtor insist that “the business is fine, we just need to fix the capital structure.” It is also a masterclass in the unique dynamics of airline bankruptcies: Section 1110 protections for aircraft lessors, loyalty program monetization structures, and the operational imperative of fleet rationalization. For anyone in the distressed debt or restructuring world, this one is required reading.

Company Background and Business Model

Spirit Airlines traces its origins to 1964 as Clippert Trucking Company, a Michigan-based freight operation that pivoted to charter air service in 1983 under the name Charter One Airlines. After rebranding as Spirit Airlines in 1992 and transitioning to scheduled service, the company embraced the ultra-low-cost carrier (ULCC) model in the early 2000s, pioneering “unbundled” fares in the U.S. market. The concept was simple and disruptive: sell the seat at the lowest possible base fare, then charge separately for everything else; bags, seat selection, refreshments, priority boarding. This approach allowed Spirit to advertise eye-catching prices while generating substantial ancillary revenue, which by the late 2010s comprised roughly half of total revenue per passenger segment.

Spirit grew aggressively, building an all-Airbus fleet that reached over 200 narrowbody aircraft by the early 2020s, serving destinations across the U.S., Caribbean, and Latin America. The airline went public in 2011 and at its peak employed over 21,000 people. Spirit’s operating model was predicated on high aircraft utilization, dense seating configurations, and a disciplined cost structure that delivered industry-leading CASM-ex (cost per available seat mile excluding fuel). For much of the 2010s, this formula worked: Spirit was consistently profitable and expanding.

However, the model’s vulnerability was always its dependence on maintaining a meaningful cost advantage over legacy carriers. As Delta, United, and American rolled out their own “basic economy” products, offering similarly stripped-down fares but with far superior networks, loyalty programs, and aircraft. Spirit’s competitive moat eroded. The fare differential that once justified Spirit’s no-frills experience shrank, leaving the airline fighting for price-sensitive leisure travelers in an increasingly crowded market. This dynamic, combined with the pandemic’s aftershocks, and limited room for consolidation within the airline industry, would prove fatal to Spirit’s existing model.

Path to Distress: From Pandemic Losses to Chapter 22

Pandemic and Post-COVID Headwinds: Spirit lost more than $2.5bn cumulatively from 2020 through 2024. The COVID-19 pandemic devastated leisure travel demand in 2020–2021, and Spirit’s recovery was hampered by a series of operational and strategic setbacks. A critical issue was the Pratt & Whitney GTF engine recall that grounded approximately 20% of Spirit’s Airbus A320neo fleet, removing dozens of aircraft from service and inflicting hundreds of millions in lost capacity. Spirit negotiated $150–200mm in credits from Pratt & Whitney’s affiliate International Aero Engines in 2024, but the operational disruption was profound. The airline was paying for aircraft it could not fly.

The JetBlue Merger Collapse: In 2022, JetBlue agreed to acquire Spirit for $3.8bn in an all-cash deal at $33.50 per share. Management viewed this as the strategic exit that would solve Spirit’s scale and competitive challenges. In January 2024, a federal judge blocked the deal on antitrust grounds at the urging of the Department of Justice, finding it would harm consumers by eliminating a low-fare competitor. Spirit’s stock cratered 47% on the ruling. With the merger, which management had treated as Plan A, dead, Spirit had no viable Plan B. The company also rejected multiple overtures from Frontier Airlines, most recently a $2.1 bn offer in early 2025 that Spirit’s board deemed inferior to its standalone restructuring plan.

Financial Deterioration: By mid-2024, Spirit was burning cash at an alarming rate. The airline reported a negative free cash flow of $1bn at the end of Q2 2025. A staggering $246mm net loss in Q2 2025 alone, against internal projections of a $252mm full-year profit, exposed the magnitude of the disconnect between management’s forecasts and operational reality. Cash burn ran at an estimated $67–83mm per month. Liquidity stood at $407.5mm as of June 30, 2025, temporarily bolstered to approximately $550–570mm after the company drew down the entire $275mm revolving credit facility in August 2025 to avert a credit card processing disruption.

Going Concern and the Filing: On August 12, 2025, Spirit issued a going concern warning in its quarterly filing, expressing “substantial doubt” about its ability to continue operating beyond the next twelve months. Seventeen days later, on August 29, 2025, Spirit Aviation Holdings filed its second Chapter 11 petition in the U.S. Bankruptcy Court for the Southern District of New York (Case No. 25-11897). CEO Dave Davis, who had replaced the departing Ted Christie just months earlier, was blunt about the first case’s shortcomings: the prior restructuring had “targeted exclusively on reducing Spirit’s funded debt and raising equity capital,” and “it has become clear that there is much more work to be done.” The industry-wide headwinds that preceded the first filing had not abated; they had intensified.

The First Bankruptcy: A Prepackaged Balance-Sheet Fix (November 2024 – March 2025)

Spirit’s first Chapter 11 was a speed run. The company entered bankruptcy on November 18, 2024, with a pre-negotiated RSA supported by holders of approximately 72.6% of the senior secured notes and over 80% of the convertible notes. The plan was confirmed on February 13, 2025,just 87 days after filing, with 99.99% of voting creditors supporting it. Emergence occurred on March 12, 2025.

The restructuring was purely financial. Under the confirmed plan, Spirit equitized $795mm of funded debt (primarily converting senior secured notes into equity), received a $350mm equity investment from existing investors through a rights offering, and issued $840mm principal amount of new senior secured PIK Toggle notes due 2030 (the “Prepetition Secured Notes” in the second case). Spirit also entered into a new $275mm revolving credit facility with Citibank as administrative agent. Vendors, aircraft lessors, and holders of secured aircraft indebtedness were left entirely unimpaired. Old equity was wiped out, with bondholders becoming majority owners of the reorganized company.

What the first case did not do was equally important: it did not reject a single aircraft lease, renegotiate a single labor contract, close a single base, or restructure any operational obligations. The theory was that balance-sheet deleveraging alone—removing $795mm of debt and adding $350mm of equity, would give Spirit sufficient runway to execute a turnaround. The market was skeptical from the start; within weeks of emergence, it became evident that Spirit’s cost structure and fleet size were fundamentally mismatched with the revenue environment. Akin Gump Strauss Hauer & Feld LLP advised the ad hoc group of senior secured noteholders, with Perella Weinberg Partners as investment banker. Davis Polk & Wardwell LLP served as debtor counsel.

Capital Structure at the Second Filing (August 2025)

When Spirit re-entered bankruptcy in August 2025, its capital structure reflected the first case’s exit financing plus the operational liabilities that had never been addressed:

• PIK Toggle Senior Secured Notes due 2030 (~$1.11bn outstanding): Issued upon emergence from the first bankruptcy and secured by Spirit’s loyalty program intellectual property and brand assets, held through Cayman Islands subsidiaries (Spirit IP Cayman Ltd. and Spirit Loyalty Cayman Ltd.). Wilmington Trust served as trustee and collateral agent. These notes were the fulcrum security in the second case and were collateralized through a Collateral Agency and Accounts Agreement covering the loyalty program cash flows and IP.

• 2025 Convertible Notes (~$25.1mm  outstanding): A small residual tranche of convertible notes surviving the first restructuring.

• 2026 Convertible Notes (~$500mm outstanding): The larger convertible tranche, deeply out of the money.

• Revolving Credit Facility ($275mm, fully drawn): Secured by aircraft and other operational assets, with Citibank N.A. as administrative agent and Wilmington Trust as collateral agent. Spirit drew the entire facility in August 2025 to shore up liquidity ahead of the filing. The RCF was partially secured by “Section 1110 Collateral” (aircraft equipment entitled to special bankruptcy protections) and partially by other assets.

• Aircraft Lease Obligations (~$5.5bn+): The elephant in the room. Spirit’s fleet of 214 aircraft was predominantly leased from parties including AerCap (the largest lessor), SMBC, Avolon, and others. Pre-filing debt and lease obligations totaled approximately $7.4bn, with lease commitments dwarfing funded debt. These obligations were untouched in the first bankruptcy; a decision that would prove catastrophic.

Total funded debt was approximately $1.635bn at the second petition date, but the inclusion of aircraft lease obligations brought total liabilities to roughly $7.4bn,a figure that made the balance-sheet improvements from the first case look like rearranging deck chairs on the Titanic. Fitch downgraded Spirit to CCC- in August 2025, signaling imminent default risk.

The Second Bankruptcy: Operational Restructuring and the Chapter 22 Playbook

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