The future of Spirit Airlines hangs in the balance over the next week as President Donald Trump said the government could bail out the airline, while lenders to the struggling discount airline mull a potential deal.
“We're thinking about doing it, helping them, I mean, bailing them out or buying it,” Trump told reporters in the Oval Office on Thursday.
“I would love to be able to save those jobs. I would love to be able to save an airline. I like having a lot of airlines, so it's competitive,” Trump said.
The White House and major bondholders had no immediate comment or declined to comment on the matter.
Trump told reporters that “when the price of oil goes down,” the government could “sell [Spirit] to make a profit.”
Spirit was expected to emerge from bankruptcy by mid-year, but that was before the U.S. and Israeli attacks on Iran caused jet fuel costs to rise. Spirit had an operating loss of nearly $28.3 million in February, according to a court filing, before rising fuel prices hit shippers and travelers' pockets.
Spirit, the iconic budget airline known for its bright yellow planes and basic service that became the punchline of late-night comedians, has struggled to survive. Industry costs soared post-Covid, as customer tastes shifted towards more exclusive offerings and international destinations.
Spirit has aggressively cut its costs, selling planes and shrinking its network. Last May, Spirit operated 19,575 flights, according to aviation data firm Cirium. This month of May, 9,353 are operating.
A planned acquisition of Spirit by JetBlue Airways was successfully challenged by the Biden administration, which the Trump administration said hurt Spirit.
“Spirit Airlines would be on much firmer financial footing if the Biden administration had not recklessly blocked the airline's merger with JetBlue,” a White House spokesperson said by email. “The Trump administration continues to monitor the situation and overall health of the U.S. aviation industry that millions of Americans depend on every day for essential travel and their livelihoods.”
Will others follow suit?
Some industry members and analysts have suggested that other airlines, especially low-cost airlines, could seek similar assistance from the government.
Low-cost airlines met with Transportation Secretary Sean Duffy earlier this week to discuss the current rise in fuel costs, people familiar with the matter told CNBC.
The Trump administration has taken stakes in companies it views as a national security interest, while companies from automakers to banks to the airline industry as a whole have received bailouts in the past, but it is highly unusual for the government to bail out a single company.
Delta Airlines and united airlines They account for the bulk of the airline industry's profits in the United States, investing years and billions of dollars to successfully court a less price-sensitive clientele willing to pay for roomier seats and other benefits, as well as extensive international networks. Many other companies, including Spirit, have tried to catch up in recent years.
“We wonder if a potential deal with Spirit could become a facility of last resort that other contested airlines could pursue in the future,” Barclays Brandon analyst Brandon Oglenski said in a note Thursday.
Possible agreement
The terms of a tentative deal are for a $500 million loan that could eventually give the government a 90% stake in the Florida-based airline, people familiar with the matter told CNBC. The potential plan would also put the government ahead of other investors, said the people, who requested anonymity to discuss the terms.
A hearing in U.S. Bankruptcy Court to discuss the potential deal could be set for Monday, according to comments in court Thursday.
Mike Stamer, an Akin attorney representing bondholders in the bankruptcy case, confirmed in court Thursday that “we did, in fact, receive a copy of the term sheet” for the potential deal with a U.S. government loan, a sign of how advanced the talks are.
The deal would also allow the U.S. government to select a board member, a person familiar with the potential terms told CNBC.
Spirit unions are also pushing for a deal.
“Any assertion that Spirit should simply be liquidated will only hurt workers, hurt passengers and further strain our economy,” the Flight Attendants Association (CWA) said Thursday. “It's unnecessary and petty, when just a little help can prevent enormous damage.”
Spirit's attorney, Marshall Huebner of Davis Polk, said in bankruptcy court Thursday that the loan would help Spirit achieve an “independent fighting form” but could also prepare it for a possible merger.
However, acquisition talks have failed before, most recently with Frontier Airlines, which originally planned to merge with Spirit until a surprise cash offer from JetBlue.
Spirit's challenges may not go away either, said Conor Cunningham, airline analyst at Melius Research.
“How deep do you want to go?” he said about Trump and the potential bailout deal. “$500 million is probably not enough.”
