Spirit Airlines Ch.11
08-08-2024, 07:54 AM
#271
New Hire
Joined APC: Mar 2018
Posts: 3
Disclaimer, I wish nothing bad for the Spirit crews. Ive been through BK's and IMSL's and all of it really sucks. This is just math and as most, if not all of you, know the math is really, really bad.
If you look at NK's liabilities coming up rapidly, $1.1 Billion due next month to pay off the 8% notes,
If you look at NK's liabilities coming up rapidly, $1.1 Billion due next month to pay off the 8% notes,
The bonds are due in Sept of 2025, not next month.
08-08-2024, 08:39 AM
#272
Gets Weekends Off
Joined APC: Nov 2015
Posts: 1,520
[QUOTE=CatPilot1;3826962]
I'm guessing he didnt say that in court because then it would show his failure as a leader or the stock would have plummeted during the Case? Who knows....
Yeah, maybe it was the admin, maybe it wasnt. No way to know if another DOJ challenges.
At the end of the day, the defense got the right judge for the district, but Ted and company fed Doha Mekki all the material she needed to win, and she said as much in that same interview using verbatim words of the Spirit sales pitch. Ted testified under oath that the company had a path to profitability as a standalone. Six months later his q2 summary includes words like "restructuring" and "-30%."
I personally believe all the judge wanted was to hear Spirit say, "we cant make it on our own," and they wouldnt do it.
That’s the million dollar question, why wouldn’t they say this, what are they up to? Why hasn’t Ted/and or Bendo been fired. I don’t know bc I’m not a wall street guru.
At the end of the day, the defense got the right judge for the district, but Ted and company fed Doha Mekki all the material she needed to win, and she said as much in that same interview using verbatim words of the Spirit sales pitch. Ted testified under oath that the company had a path to profitability as a standalone. Six months later his q2 summary includes words like "restructuring" and "-30%."
I personally believe all the judge wanted was to hear Spirit say, "we cant make it on our own," and they wouldnt do it.
That’s the million dollar question, why wouldn’t they say this, what are they up to? Why hasn’t Ted/and or Bendo been fired. I don’t know bc I’m not a wall street guru.
08-08-2024, 09:42 AM
#273
Gets Weekends Off
Joined APC: Jun 2006
Posts: 1,466
08-08-2024, 09:51 AM
#274
Gets Weekends Off
Joined APC: Nov 2018
Posts: 142
Yeah, maybe it was the admin, maybe it wasnt. No way to know if another DOJ challenges.
At the end of the day, the defense got the right judge for the district, but Ted and company fed Doha Mekki all the material she needed to win, and she said as much in that same interview using verbatim words of the Spirit sales pitch. Ted testified under oath that the company had a path to profitability as a standalone. Six months later his q2 summary includes words like "restructuring" and "-30%."
I personally believe all the judge wanted was to hear Spirit say, "we cant make it on our own," and they wouldnt do it.
That’s the million dollar question, why wouldn’t they say this, what are they up to? Why hasn’t Ted/and or Bendo been fired. I don’t know bc I’m not a wall street guru.
At the end of the day, the defense got the right judge for the district, but Ted and company fed Doha Mekki all the material she needed to win, and she said as much in that same interview using verbatim words of the Spirit sales pitch. Ted testified under oath that the company had a path to profitability as a standalone. Six months later his q2 summary includes words like "restructuring" and "-30%."
I personally believe all the judge wanted was to hear Spirit say, "we cant make it on our own," and they wouldnt do it.
That’s the million dollar question, why wouldn’t they say this, what are they up to? Why hasn’t Ted/and or Bendo been fired. I don’t know bc I’m not a wall street guru.
Things didn't really start falling apart for Spirit until toward the end of the trial and after. For example, they were still hiring pilots in October 2023.
In the end the senile old judge on the eve of his retirement went with the emotional argument that poor old grandmas wouldn't be able to visit their grandchildren in Florida (or vice versa) if the merger was approved. It was and will always be an odd take for someone who's first duty was supposed to be the law.
Unfortunately the Judge did not understand how competitive the airline industry is or that Spirit's MO was to stimulate demand that wouldn't exist otherwise. And the lawyers barely even tried to convince him. I don't get it.
08-08-2024, 04:01 PM
#276
Gets Weekends Off
Joined APC: Dec 2007
Posts: 5,598
Disclaimer, I wish nothing bad for the Spirit crews. Ive been through BK's and IMSL's and all of it really sucks. This is just math and as most, if not all of you, know the math is really, really bad.
If you look at NK's liabilities coming up rapidly, $1.1 Billion due next month to pay off the 8% notes, there just isn't a solution short of a miracle. That miracle being someone comes in and buys the bonds for pennies on the dollar but they will only do that in return for something and that something isn't there because the bonds are maturing. The only reason anyone buys distressed debt at a discount is the coupon ("interest") is still paid. So if you buy $1b in bonds at a 70% discount paying 8% you could possibly (assuming a lot of default risk) recoup your original investment over a couple years because you are collecting 8% on the $1b even though you paid $300M. These bonds don't have any coupon payments remaining so nobody is going to buy them. The other miracle is somebody buys them at a steep discount in exchange for a large percentage of ownership in the airline. That process isn't going to happen outside of BK.
Speaking of BK, it isn't a magic shower where you enter dirty and walk out squeaky clean. It is a torture chamber and if you don't enter with some cohesive (and more importantly FUNDED) plan to exit as a profitable entity you don't enter to reorganize you enter to liquidate so you can protect yourselves from litigation from the $3b you owe to lenders (no concern for public stockholders, they get nothing).
Can NK come up with the cash themselves? No and here is why...
First and foremost we are all in the business of carrying passengers. Your total fare per passenger is down yoy nearly 16% to $108 per pax. Keep in mind F9 is barely staying aflot from a net profit perspective with $125 per pax but that is 15% more profit per pax and we are growing capacity by low double digits (albiet slowing down according to recent news). On top of the 15% lower rev number, NK CASM is 9.7% higher than F9 (7.36 v 6.71). I don't bring up F9 to be a dick but if NK is going to get debtor in possession financing (aka your new Daddy in BK) they need to show a profitable path upon exit. The current numbers only show things getting worse, not better, in the short term.
Second, spirit announced the delay in aircraft deliveries that were supposed to come 2025 and 2026 to 2030 and 2031. What that announcement didn't say is spirit sold their delivery positions for 2027 and 2028 for 36 aircraft to a third party and that entity has agreed to rent those back to spirit but that means spirit will have zero SLB good guys for that two year period. That is a couple hundred mil a year they have been living on. The announcement also did not include the fact that spirit has no financing in place for aircraft deliveries beyond 2029 (per their own filing). They had 52 aircraft on the books, airbus did them a hugie and returned pre delivery payments (that haven't been made yet) to the tune of almost $200 million (this is totally different than the $200 milly from pratt). Basically spirit's outstanding airbus delivery schedule for the next eight years just went from 101 new planes to maybe 36 (assuming the 2027-28 positions they sold are actually rented back to NK, I use the term "rent" on purpose because it is technically different than leasing). This is referred to as "burning the furniture to heat the house". Your lifeblood is carrying passengers inside of airplanes over the long term but sometimes, when things go really bad, you need to tap into whatever equity you have to stop the short term bleeding. Spirit has leveraged every single future aircraft delivery in some, way, shape or form to generate short term liquidity.
Third, cash on hand (and this is where things go sideways really quick). Liquidity decreased yoy from $1.23B down to $845M, a decrease of 31%. You owe $1.1 B next month and you have $845 cash on hand. You do have a $300M revolver that you can tap (they just extended the maturity one year into 2026 just in case) but then you pay off the notes and go to zero cash on hand. Here is why you can't do that...
Fourth, credit card hold back. When passengers buy a ticket using a card the credit card company pays the airline a portion of the ticket upon payment and the balance upon actual travel (aka "the hold back"). According to the recent Q, the current holdback is 0% which is great but it can be triggered by liquidity covenants and if triggered it is around $500M. So, thats bad.
While typing I thought of another path to paying off the debt due next month. Spirit (more than likely already has done this) goes to the bond holders and says "hey, you can get zero if we file or you can get 35 cents on the dollar (15 cents?)". The bond holders will likely ask for some warrants or something with at least a potential to recoup some of their loss. If we don't hear or read anything of spirit "working it out" (parlance for screwing over your lenders) very soon, then a BK announcement is imminent.
What does BK look like? Having been through two different airline BK's and three different restructurings outside of BK I can tell you this. If spirit is filing (assuming they have not worked out the September debt payment) they most definitely already have a bk firm and the most definitely are shopping around for a "white knight" to enter bk together with a preplanned, financed exit plan. Spirit as a whole today isn't working. Parts of spirit definitely work. The preplanned exit would rely upon the white knight to finance everything short term in exchange for majority (if not complete) ownership in the long term. The long term entity is bigger than spirit than the acquiring airline today but you can expect some of spirit no longer existing. Indigo knows this game VERY well but you can't rule out two of the legacies that would love to see spirit gone while hating they idea of another ULCC getting stronger (one legacy comes to mind quickly, the only other one with cash could also enter the mix, perhaps they both join forces because it helps them in the long term).
If you look at the most recent Ch 11's that included a merger upon exit there was in fact an IMSL at the end but it sure as heck wasn't friendly to the BK native seniority list. You can't be stapled but it looks something like "nine of them, two of you, nine of them, three of you", and so on. You are eventually on a bigger list but your seniority is diluted.
I am no expert, I have just eaten this sandwich before and I can read and do math above a fifth grade level. The bright spot for those most impacted is this will all be known sooner rather than later. This is literally happening now. Watch the news for the remainder of August. Hope for a work out (still A LOT of hurdles remain because 2026 looks a heck of a lot like 2025 with regard to debt payments and the other lenders will get lawyered the f up as they see previous lenders get hammered) and prepare for a prepackaged BK. And why did I waste five minutes reading the filing and five more typing this? I'm bored and I actually enjoy reading the recent filings of several airlines, its part curiousity and part survival. The financing moves being made right now are actually pretty fascinating.
If you look at NK's liabilities coming up rapidly, $1.1 Billion due next month to pay off the 8% notes, there just isn't a solution short of a miracle. That miracle being someone comes in and buys the bonds for pennies on the dollar but they will only do that in return for something and that something isn't there because the bonds are maturing. The only reason anyone buys distressed debt at a discount is the coupon ("interest") is still paid. So if you buy $1b in bonds at a 70% discount paying 8% you could possibly (assuming a lot of default risk) recoup your original investment over a couple years because you are collecting 8% on the $1b even though you paid $300M. These bonds don't have any coupon payments remaining so nobody is going to buy them. The other miracle is somebody buys them at a steep discount in exchange for a large percentage of ownership in the airline. That process isn't going to happen outside of BK.
Speaking of BK, it isn't a magic shower where you enter dirty and walk out squeaky clean. It is a torture chamber and if you don't enter with some cohesive (and more importantly FUNDED) plan to exit as a profitable entity you don't enter to reorganize you enter to liquidate so you can protect yourselves from litigation from the $3b you owe to lenders (no concern for public stockholders, they get nothing).
Can NK come up with the cash themselves? No and here is why...
First and foremost we are all in the business of carrying passengers. Your total fare per passenger is down yoy nearly 16% to $108 per pax. Keep in mind F9 is barely staying aflot from a net profit perspective with $125 per pax but that is 15% more profit per pax and we are growing capacity by low double digits (albiet slowing down according to recent news). On top of the 15% lower rev number, NK CASM is 9.7% higher than F9 (7.36 v 6.71). I don't bring up F9 to be a dick but if NK is going to get debtor in possession financing (aka your new Daddy in BK) they need to show a profitable path upon exit. The current numbers only show things getting worse, not better, in the short term.
Second, spirit announced the delay in aircraft deliveries that were supposed to come 2025 and 2026 to 2030 and 2031. What that announcement didn't say is spirit sold their delivery positions for 2027 and 2028 for 36 aircraft to a third party and that entity has agreed to rent those back to spirit but that means spirit will have zero SLB good guys for that two year period. That is a couple hundred mil a year they have been living on. The announcement also did not include the fact that spirit has no financing in place for aircraft deliveries beyond 2029 (per their own filing). They had 52 aircraft on the books, airbus did them a hugie and returned pre delivery payments (that haven't been made yet) to the tune of almost $200 million (this is totally different than the $200 milly from pratt). Basically spirit's outstanding airbus delivery schedule for the next eight years just went from 101 new planes to maybe 36 (assuming the 2027-28 positions they sold are actually rented back to NK, I use the term "rent" on purpose because it is technically different than leasing). This is referred to as "burning the furniture to heat the house". Your lifeblood is carrying passengers inside of airplanes over the long term but sometimes, when things go really bad, you need to tap into whatever equity you have to stop the short term bleeding. Spirit has leveraged every single future aircraft delivery in some, way, shape or form to generate short term liquidity.
Third, cash on hand (and this is where things go sideways really quick). Liquidity decreased yoy from $1.23B down to $845M, a decrease of 31%. You owe $1.1 B next month and you have $845 cash on hand. You do have a $300M revolver that you can tap (they just extended the maturity one year into 2026 just in case) but then you pay off the notes and go to zero cash on hand. Here is why you can't do that...
Fourth, credit card hold back. When passengers buy a ticket using a card the credit card company pays the airline a portion of the ticket upon payment and the balance upon actual travel (aka "the hold back"). According to the recent Q, the current holdback is 0% which is great but it can be triggered by liquidity covenants and if triggered it is around $500M. So, thats bad.
While typing I thought of another path to paying off the debt due next month. Spirit (more than likely already has done this) goes to the bond holders and says "hey, you can get zero if we file or you can get 35 cents on the dollar (15 cents?)". The bond holders will likely ask for some warrants or something with at least a potential to recoup some of their loss. If we don't hear or read anything of spirit "working it out" (parlance for screwing over your lenders) very soon, then a BK announcement is imminent.
What does BK look like? Having been through two different airline BK's and three different restructurings outside of BK I can tell you this. If spirit is filing (assuming they have not worked out the September debt payment) they most definitely already have a bk firm and the most definitely are shopping around for a "white knight" to enter bk together with a preplanned, financed exit plan. Spirit as a whole today isn't working. Parts of spirit definitely work. The preplanned exit would rely upon the white knight to finance everything short term in exchange for majority (if not complete) ownership in the long term. The long term entity is bigger than spirit than the acquiring airline today but you can expect some of spirit no longer existing. Indigo knows this game VERY well but you can't rule out two of the legacies that would love to see spirit gone while hating they idea of another ULCC getting stronger (one legacy comes to mind quickly, the only other one with cash could also enter the mix, perhaps they both join forces because it helps them in the long term).
If you look at the most recent Ch 11's that included a merger upon exit there was in fact an IMSL at the end but it sure as heck wasn't friendly to the BK native seniority list. You can't be stapled but it looks something like "nine of them, two of you, nine of them, three of you", and so on. You are eventually on a bigger list but your seniority is diluted.
I am no expert, I have just eaten this sandwich before and I can read and do math above a fifth grade level. The bright spot for those most impacted is this will all be known sooner rather than later. This is literally happening now. Watch the news for the remainder of August. Hope for a work out (still A LOT of hurdles remain because 2026 looks a heck of a lot like 2025 with regard to debt payments and the other lenders will get lawyered the f up as they see previous lenders get hammered) and prepare for a prepackaged BK. And why did I waste five minutes reading the filing and five more typing this? I'm bored and I actually enjoy reading the recent filings of several airlines, its part curiousity and part survival. The financing moves being made right now are actually pretty fascinating.
2024: $65.2m
2025: $1.267B
2026: $674m
Spirit's Market Cap is $289m. It's net debt(total debt-cash) is $2.3B Add those two together and purchasing Spirit outright at the current share price yields and Enterprise Value of $2.6B to purchase Spirit at the current share price, which IMO is extremely undervalued for a airline that is stabilize with plane and people in place
Another example, if you take Spirit's assets and subtract all liabilities total Equity of the company is $800m yet it trades at $289m market cap because the market values the business at less than zero, in an environment when airlines are desperate for modern aircraft. Mind you the planes Spirit owns has been depreciated but in this supply chain constrained environment the planes are worth far more than their depreciated balance sheet value.
At the end of the day the key to figuring out the probabilities of Spirits future lies in the balance sheet and the cashflow statement. Income statement should be completely ignored as all kinds of accounting magic is done there that has zero impact on cashflows. Spirit owes $1.3B in 2025. They have $725m in cash. They are burning cash at a pace of $540m/yr. Overall it's a market call. Will the bond holders negotiate new terms ie 12% due 2030? Can Management find outside funding ie Private investment in public equity (PIPE)? Or will Frontier wait for the future political landscape to be more clear come November then swoop in for the Merger that should of happened in the first place before jetBlue launched their desperate bid?
IMO I think Spirit is too large for the entire market to let it go bankrupt. It would take time and tremendous capital for another carrier to grow into Spirit's vacated capacity. Spirit is more valuable alive vs dead in the Supply Chain and Labor constrained environment. Some Private Investor or Frontier will buy it
08-08-2024, 04:57 PM
#277
Gets Weekends Off
Joined APC: Aug 2020
Posts: 2,319
IMO I think Spirit is too large for the entire market to let it go bankrupt. It would take time and tremendous capital for another carrier to grow into Spirit's vacated capacity. Spirit is more valuable alive vs dead in the Supply Chain and Labor constrained environment. Some Private Investor or Frontier will buy it
08-08-2024, 05:20 PM
#278
Gets Weekends Off
Joined APC: Nov 2015
Posts: 1,520
What makes you think that? Bigger airlines such as Braniff, Eastern, and Pan Am closed their doors and the airline world kept on spinning. The survivors took some of the assets, added a few extra sections here and there, and except for the former employees, it was if they had never existed. Spirit or any other company could liquidate and the rest of the industry would adapt. Ticket prices would rise in the short term due to increased competition for the available seats until the survivors right sized their fleets for the new normal. The managers of the surviving companies would love the new flood of revenue from higher prices, as well as a significant increase in the pool of experienced pilots applying to start over. Considering that any business has to at a minimum break even, the idea of being too big to fail is a myth. We're all at the mercy of our respective management teams and we have chosen a brutal industry to earn a living. I sincerely hope that you guys can recover
08-08-2024, 05:28 PM
#280
Gets Weekends Off
Joined APC: Aug 2020
Posts: 2,319
I'll figure out women before I figure out this industry. In good times both are a lot of fun, in bad times they both take everything you have.
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