Spirit Airlines (NK, Fort Lauderdale International) was downgraded by S&P Global over debt maturities approaching in 2025, but the carrier’s CEO stressed in a call with shareholders that Spirit wasn’t considering a Chapter 11 bankruptcy.
The cut comes as the agency said it expects Spirit’s operating performance to remain pressured throughout 2024. “Competitive ticket pricing, imbalanced network demand and supply, and limited capacity growth from engine issues, are expected to lead to a sizeable free cash flow deficit at least over the next 12 months, and we now view the company's liquidity position as less than adequate,” a statement from S&P Global read.
Furthermore, the ratings agency stressed that Spirit's upcoming maturities include a USD1.1 billion loyalty bond due in September next year and a USD500 million convertible note due in 2026. Meanwhile, S&P projects that Spirit will end the year with liquidity of USD1 billion. The budget carrier, whose merger with JetBlue was terminated in March, now has a rating at S&P of CCC, which compares to the previous CCC+.
S&P pointed out that “Pratt & Whitney engine issues are limiting capacity growth and pressuring fleet utilization” but recognised that the airline has undertaken some measures, such as network changes, to address the issues. Moreover, Spirit is seeing weak demand in leisure markets and higher costs in the US domestic market, which is also diminishing its performance, the agency noted. Finally, S&P added that its “current forecast does not assume a successful pivot of Spirit's business model within the next two years".
Addressing concerns from investors at a shareholder meeting days after the S&P rating downgrade had been published, Spirit Airlines CEO Ted Christie said the carrier was not considering a Chapter 11 bankruptcy at this moment. “We are proudly executing our plan as we’ve exited the merger agreement with JetBlue and are encouraged by the initial results of our standalone plan,” he said.
Meanwhile, Spirit is in talks with bondholders to restructure USD3 billion in debt and reduce costs, local media reported earlier. The talks take place as Spirit entered a monthly credit agreement with International Aero Engines, an affiliate of Pratt & Whitney, to receive compensation for aircraft groundings over PW1100G engine issues. The airline also deferred 2025-2026 Airbus orders, closed its Atlantic City base, and announced it would furlough some 260 pilots in attempts to improve its cash levels.
Last month, Fitch downgraded Spirit from B- to CCC.