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Bound for its third bankruptcy in two years, talks for a government-funded bailout of Spirit Airlines appear to have stalled with the affordable air carrier on the brink of collapse. CBS News reported that the Trump Administrationwas considering a deal to lend the airline 500 million in exchange for a 90% controlling stake in the carrier, but the creditors behind Spirit have not agreed, with some openly opposing it.
The attack on Iran that Donald Trump ordered under Operation Epic Fury has driven oil prices far higher than Spirit expected when it planned its post-bankruptcy restructuring and recovery strategy. Although the carrier has reduced its fleet and route network, as well as cut staff in large numbers, the insurmountable obstacle of fuel prices has prevented Spirit from earning a profit.
The Great Big Bailout Of Spirit Airlines
Officials from the United States government told CBS News that Ares Management and Cyrus Capital are opposed to the government bailout plan. Additionally, Ken Griffin’s Citadel submitted a counterproposal, but the Trump Administration rejected the offer. With negotiations ongoing, the next bankruptcy hearing that was scheduled for Thursday has been postponed.
Last week, the Trump Administration was discovered to be considering invoking the Defense Production Act’s emergency powers as a means of extending a loan to the airline. Trump told reporters that Spirit had “some good assets” and “some good aircraft” with the plan being to use excess capacity for the transport of military and government passengers or cargo.
If the government were to use wartime measures as a means of temporarily taking control of Spirit, the endgame would be to sell the carrier back to a private company once it emerged from bankruptcy. Fortune reported this statement from White House spokesman Kush Desai, who described reports of the Administration considering using the emergency power that dates back to the Korean War as speculation:
“President Trump has openly expressed his interest in helping Spirit Airlines, and the Administration continues exploring possible options to ensure the airline remains in operation for its passengers and employees.”
Trump’s Huge Plan To Save American Jobs
President Trump has touted his proposal to bail out Spirit Airlines as a way to save between 15,000 and 17,000 jobs in the United States. The government’s involvement is framed as a stabilization measure to keep the carrier viable for a future sale. President Trump stated he would prefer to see another airline acquire Spirit eventually. Still, the deal has faced significant pushback from stakeholders, USG officials, and the wider industry.
Without federal intervention, officials warn the airline would face total liquidation, immediately eliminating the livelihoods of thousands of frontline aviation workers. Other budget carriers like Frontier and Avelo responded to the government proposal by lobbying for their own line of financial assistance. The other low-cost carriers in America have argued that bailing out Spirit creates an unfair market advantage.
Free-market advocates and some Republican lawmakers, such as Senator Ted Cruz, have called the plan a dangerous precedent for federal interference in the private sector. Kevin O’Leary criticized it as “rewarding bad management,” stating that “capitalism works because the losers die.” Meanwhile, unions that represent workers at Spirit have begun calling for clauses to be included in any federal assistance with strict no-furlough and no-layoff clauses to ensure the carrier does actually retain employees after receiving any bailout money.
Sources: Spirit Airlines Could Shut Down By Week’s End As Bankruptcy Recovery Regresses
The troubled budget carrier is on the rocks again.
How Is a Low-Cost Carrier Critical to National Defense?
The Administration is investigating using the DPA to reclassify Spirit’s workforce and fleet as critical to national defense in order to effect a rapid bailout. Under this plan, Spirit employees could be tasked with transporting military cargo and troops to support defense interests, specifically cited as a justification for government control of the operation.
Many lawmakers and critics remain skeptical, saying that if private investors don’t believe the airline can be run profitably, a government-led operation will likely eventually fail despite the immediate job preservation. If the government-backed reorganization fails, taxpayers could be ‘left holding the bag’ as owners of a worthless company. Critics also argue that the 1950 wartime statute is being stretched far beyond its intended purpose.
If the airline fails to exit bankruptcy even with government support, the results are likely to be worse than a standard liquidation. While the move is intended to preserve low-fare competition, bailing out one airline creates an unlevel playing field. It may force equally fragile budget rivals like Frontier, Avelo, Southwest Airlines, or JetBlue to slash their own flights to avoid a financial tailspin, ultimately shrinking industry capacity and raising fares.
