Spirit Airlines is on shakier ground after avoiding hard decisions in bankruptcy

Brandon Bell | Getty ImagesIn March, Spirit Airlines came out of bankruptcy tection in less than four months and entered a worsening landscape

Consumers were holding off booking flights and U.S. planes were awash in empty seats

Even the most fitable airlines cut the rosy financial forecasts they had issued at the start of the year.But Spirit, an airline with bright yellow planes that has become synonymous with budget travel in the U.S., now appears on even shakier ground

Last week, five months after getting out of bankruptcy, Spirit warned it might not be able to survive a year without more cash and that its credit card cessor is seeking more collateral.Industry experts said the airline avoided making hard decisions before or during bankruptcy tection, such as renegotiating aircraft leases or shrinking the carrier altogether

Instead, the airline in bankruptcy reached a deal with bondholders, who exchanged debt for equity."It made it that much more unly for them to succeed without having tackled some of those issues," said Joe Rohlena, airline analyst at Fitch Ratings, which downgraded Spirit last Friday, saying the company might be unable to avoid a default because of its cash burn.Bankruptcy attorney Brett Miller, U.S. co-chair of the restructuring department at Willkie Farr & Gallagher who represented the creditors' committee, said Spirit "didn't use the tools available to them in Chapter 11" for bigger changes.Spirit had forecast a net fit of $252 million this year, according to a court filing from December

But its report last week said it instead lost nearly $257 million since March 13, after it exited Chapter 11 through the end of June.s of Spirit Aviation Holdings have dropped close to 58% since its "going concern" warning earlier this month

The stock of other airlines rallied after the cautionary statement. 10% of Spirit's seats are on routes with no competition, according to Courtney Miller of Visual Apach Analytics, an aviation re firm.Signs of strain are showing

Aircraft lessors have reached out to competitor airline executives in recent weeks asking if they would take any of Spirit's roughly 200 Airbus aircraft, according to people familiar with the matter.Aviation analytics firm IBA's chief economist, Stuart Hatcher, said he would have expected Spirit to be more active on dealing with aircraft leases during bankruptcy."If they're able to strip 10% of all of their lease rates, that would have had a huge impact on cash flow," he said.This doesn't mean the end of the line for Spirit."There's a lot of incentive to keep airlines a because there's a lot of constituencies that would be hurt badly" employees, consumers and others, said James Sprayregen, vice chairman of financial services company Hilco Global who represented United Airlines and TWA airlines in their respective bankruptcies.Read more CNBC airline newsSpirit Airlines warns it might not be able to survive a year without more cashWhy Delta and United are pulling away from the airline packHow much are Southwest's new assigned seats? It depends'He's showing up.' Things are getting better at Boeing under CEO Ortberg

Can he keep it going?Selling assetsEven before bankruptcy, Spirit had embarked on a ject to sell more upmarket ducts roomier seats or bundled fares that include seat assignments and baggage, to better compete with larger rivals that have enjoyed a windfall from big-spending customers post-pandemic.More recently, the carrier has said it is seeking to sell assets planes, leases and real estate to raise cash

It has also reduced some of its unfitable flying and last year had announced job cuts and aircraft sales last year to cut costs and raise cash

Spirit CEO Dave Davis told employees in a memo last week that the changes the Dania Beach, Florida-based company is making "will continue to vide consumers the unmatched value that they have come to expect for many years to come."Spirit declined to on whether it would file for bankruptcy again or whether lessors are trying to remarket its planes."We will not on market rumors and speculation," Spirit said in an ed statement. "Spirit Airlines is a critical part of the U.S. aviation industry, and we vide high-value travel options to the communities we serve

Our focus is on making the necessary changes to better position the company and build a stronger airline

We remain hard at work on many initiatives to tect our , valued Team Members, partners and Guests."Travelers wheel luggage toward Spirit Airlines check-in desk at George Bush Intercontinental Airport, Tuesday, Nov. 21, 2023, in Houston.Jason Fochtman | Houston Chronicle | Hearst Newspapers | Getty ImagesIBA's Hatcher said it's getting to be the wrong time of year — the low season, after the peak summer and before the winter holidays — to place aircraft with other airlines, though pricing has been firm

It's been even stronger for spare Pratt & Whitney engines

The engines for Airbus A321neos that Spirit uses are renting for $15.8 million a month, up 50% from 2019, according to IBA data.But some warn that even deep cuts can't always turn an airline around."You have no place to sleep if you burn your bed," said Brett Snyder, founder of the Cranky Flier travel website, author of a weekly airline industry network analysis and a former airline manager.Meanwhile, the carrier already plans to furlough hundreds of more pilots, and both aviators' and flight attendant unions are bracing employees for worse news ahead."Spirit is in a fragile financial position, ly more so than at any point in the previous 24 months," the Association of Flight Attendants-CWA, which represents Spirit's roughly 5,400 cabin crew members, said in a note to the members on Aug. 12, after Spirit's warning. "Use this time to assess your financial situation and begin strategizing how best to weather the financial impact that flying cutbacks may have on your household."Hundreds of its flight attendants have already taken temporary leaves of absence, which allowed them to keep medical benefits.Rough few yearswatch now10:5410:54Why Spirit Airlines is strugglingSpirit has faced other challenges leading up to its bankruptcy filing last year.A Pratt & Whitney engine recall grounded many of its aircraft starting in 2023

That same year it reached a deal to merge with fellow budget carrier Frontier Airlines, but holders rejected the deal in favor of an all-cash takeover by JetBlue Airways that was ultimately shot down in a federal antitrust case, leaving both carriers on their own.Frontier was in merger discussions with Spirit last year just before Spirit's bankruptcy filing, but those talks fell apart."They've squandered every opportunity to make everything work," Snyder said.An oversupply of domestic flights also drove down airfare in recent years, mpting the industry to cut back capacity, and the trend was especially punishing for U.S.-focused carriers

Those low-fare carriers had another blem when wages went up in the wake of the pandemic, upending their low-cost model."I think there may have been a bit of optimism on their part in terms of kind of the strategic reset that they had planned," said Fitch's Rohlena. "That then came face-to-face with a harder, harsher aviation environment."Don’t miss these insights from CNBC Morgan Stanley says nu power is gaining momentum, recommends these stocksWells Fargo hikes S&P 500 target as U.S. tariffs get delayed againMorgan Stanley maintains bullish stance on Nvidia heading into earnings, raises price targetWhy UBS just raised its gold forecast again as the precious metal hovers near record high