Spirit Airlines LLC Upgraded To ‘CCC+’ On Emergence From Bankruptcy; Outlook Stable

The emergence from creditor protection has reduced Spirit’s debt levels and improved its liquidity position, but risks remain.

The company’s post-emergence capital structure consists of a new $275 million revolver, a new $840 million exit senior secured notes, $136 million of existing U.S. Treasury-issued payroll support (PSP) loans, and about $1.6 billion of various existing aircraft debt. We do not rate the new exit facilities. Of the $1.6 billion senior secured and convertible notes previously outstanding, $795 million was equitized. In addition, the company has repaid the $309 million debtor-in-possession (DIP) financing and the $300 million drawn on the previous revolver. At emergence, total funded debt was lower by $1.4 billion (including repayment of the DIP financing) with the maturities extended out from 2025. Total liquidity inclusive of $275 million revolver availability was about $1 billion, which should provide some runway for the company to execute its business transformation plans over the next 12 months. We project about $950 million at the end of 2025 and note that the new senior secured notes have a $450 million minimum liquidity covenant.

We estimate gradual recovery in operating performance, but the company remains vulnerable to market and macroeconomic conditions to meet future financial commitments.

Spirit’s bankruptcy filing and subsequent emergence follows a period of deterioration in the company’s operating performance, which included operating losses and steep free cash flow deficits in 2023 and 2024. Aircraft on ground (AOGs) from engine issues that limited capacity growth and utilization, overcapacity in key domestic markets, and elevated labor costs were notable contributors.

We consider there to be execution risks to management’s business transformation plan. The company’s turnaround initiatives include network reconfiguration to align supply and demand, differentiating product options with a focus on new premium offerings, and improving brand sentiment through marketing. In our view, these efforts will take time (likely more than a year) to translate into meaningful improvement, and we do not expect a significant rebound in credit metrics to levels commensurate with a higher rating at least through 2026. Also, Spirit remains exposed to competitive pressures (with an estimated 40% route overlap with Frontier and 25% with Southwest), and we view pricing power to be somewhat limited by its value proposition as a low-cost option. The industry has moved toward premium offerings as a response to a structural shift in consumer demand, but Spirit will need to demonstrate a sustainable ability to sell higher fares considering its historically value-conscious customer base. Furthermore, the company’s bankruptcy could have an impact on Spirit’s brand image and thus prospective passenger demand over the near-term.

We project capacity to decline in the mid-teens percentage area in 2025 as a result of AOGs and the sale and removal of aircraft from service as Spirit reduces frequency on underperforming routes. While this should benefit unit revenues, unit costs will be adversely impacted by lower fleet utilization (less fixed cost absorption) and increased aircraft rent from 2024 and 2025 deliveries. Management expects the number of AOGs to double this year and doesn't anticipate improvement until 2027 at the earliest. We project cost per available seat mile excluding fuel and special items (CASM-ex) to rise further by about 9% in 2025, after a 13% increase in 2024. Despite our projection of improved profitability with S&P Global Ratings-adjusted EBITDA margins about 7.5% in 2025, we expect an unadjusted free cash flow deficit of about $270 million.

Increasing macroeconomic uncertainty could dampen consumer spending, thereby pressuring domestic travel demand.

S&P Global Ratings believes there is a high degree of unpredictability around policy implementation by the U.S. administration and the potential effect on economies, supply chains, and credit conditions around the world. Additionally, several airlines have revised guidance for Q1 2025 earnings to account for softer-than expected demand (among other factors). While our base-case currently forecasts further operational improvement in 2026, a recessionary environment could drive a material reduction in customer demand, particularly within the domestic leisure market. We believe that an unexpected deterioration in market conditions would likely result in a widened free cash flow deficit beyond our current forecast and pressure Spirit’s liquidity position.

The stable outlook reflects our view that Spirit will have sufficient liquidity to fund its free cash flow deficit over at least the next 12 months as it implements its transformation initiatives, with the potential for improvement in cash flow beyond this year.

We could lower our rating on Spirit if we believe the company is likely to default absent unforeseen positive developments in the next 12 months. This could occur if:

We could raise our rating on Spirit if the company significantly improves its operating performance, supported by stable revenues and consistent margin improvement, leading to funds from operations (FFO)/debt in the low- to mid-single-digit percent area on a sustained basis. We would also expect adequate liquidity supported by sustained positive free cash flow generation, as well as EBITDA interest coverage firmly above 1x.