Navigating Spirit Airlines’ Bankruptcy Filings: What Chapter 11 Really Does

Source: Wikipedia

Background: What Put Spirit Under Pressure

Spirit Airlines entered Chapter 11 bankruptcy after a multi-year squeeze from three fronts: a blocked and terminated merger with JetBlue, fleet capacity and reliability issues, and a struggling balance sheet with persistent losses. 

On January 16, 2024, a federal judge blocked JetBlue’s $3.8 billion acquisition of Spirit Airlines on antitrust grounds. JetBlue then terminated the merger on March 4, 2024, and granted Spirit a $69 million termination fee. The deal was a financial lifeline for Spirit, and losing it left the company carrying a heavy debt load. 

Ongoing problems and inspections for Spirit aircraft engines forced the company to park several aircraft, beginning in 2024. This lowered the airline’s capacity and complicated schedules. This disruption resulted in lost revenue, which weighed heavily on Spirit’s balance sheet.

Spirit faced several large maturity dates in 2025 and 2026 against a backdrop of continued losses and increased operating costs. With capital markets uncertain for a standalone ultra-low-cost airline carrier, and out-of-court negotiations putting the airline in a difficult position, Chapter 11 became the only viable avenue of escape for Spirit.

Spirit Airlines has now filed for bankruptcy twice in a year (Nov. 2024 and Aug. 2025). What may seem like the ultimate failure for the company is actually a strategic move that allows for continued operations during a period of restructuring. 

Spirit first filed for Chapter 11 bankruptcy on November 18, 2024, and submitted a reorganization plan to the court that was confirmed on February 20, 2025. The airline then filed for a second Chapter 11 bankruptcy on August 29, 2025.

Spirit’s Bankruptcy Filing and Automatic Stay

Spirit filed for Chapter 11 bankruptcy on Nov. 18, 2024, amid mounting losses, a failed merger, increasing operational costs, and lingering financial issues from the pandemic. Upon filing, Spirit was granted an “automatic stay,” a key feature of Chapter 11 bankruptcy that halted collections, lawsuits, and repossessions against the company. This gave Spirit financial breathing room to “catch its breath” and begin the restructuring process. Unlike Chapter 7 bankruptcy (which requires the liquidation of some assets to pay creditors), Chapter 11 bankruptcy allowed Spirit’s management team to stay in control as a “debtor-in-possession” (DIP). At this time, Spirit continued operations while under the supervision of the court. Practically, this gave Spirit time to negotiate with lenders as they drafted a plan to move forward.

Stabilization Through Short-Term Funding

Immediately after filing, Spirit requested the authority to continue paying employees, paying utilities, honoring customer programs, and accessing “DIP financing.” DIP financing is a super priority loan process that companies that have filed for Chapter 11 can take advantage of to stay afloat. The court also granted Spirit to use some of its “cash collateral.” At the time of the bankruptcy filing, much of the airline’s cash was already pledged to lenders. The court authorized the airline to use some of that cash to maintain operations, provided the lenders consented. 

Addressing The Issues

Source: Kevin Carter

As part of a Chapter 11 bankruptcy filing, a company must disclose its financial information to the court and submit a restructuring plan. Statements of financial affairs (SOFAs) must be prepared and submitted to an unsecured creditors’ committee (UCC). In Spirit’s case, these filings laid the groundwork for a plan backed by key stakeholders. The court confirmed Spirit’s plans for reorganization on Feb. 20, 2025.

Shortly after its confirmation by the courts, Spirit Airlines emerged from Chapter 11 bankruptcy in March 2025. On that date, new debt and equity were issued, old claims were paid or exchanged as the plan required, court-approved contracts were assumed (kept) or rejected, and exit financing closed. At this point, the company was no longer under court supervision and was able to follow through with the proposed restructuring plan, returning to normal operations with reduced debt and a cleaner balance sheet. 

Troubling Reality

Summer 2025 was a challenging time for the company. It brought on sustained cash burn, weak revenues, and high operating costs. These headwinds meant that the Nov. 2024 filing of Chapter 11 was not enough, and the company was forced to file again. A second filing - often nicknamed “Chapter 22” - can be rational when the first plan fixes the balance sheet, but the cost base or revenue environment still isn’t sustainable. Spirit’s network of planes was still struggling to earn enough revenue to keep the company afloat. Spirit explicitly framed the new case around reducing fleet and maintenance obligations and repositioning the network. 

In September, Spirit opted to slash costs in practice. The company suspended roughly 40 routes, with plans to leave Hartford airport and Minneapolis-St. Paul later this year, and announced large-scale layoffs for flight attendants to match the lighter schedule. 

Liquidity for the Road Ahead

A debtor, such as Spirit, often needs fresh cash to fund operations during a bankruptcy case. In Spirit’s second filing, the company garnered ~ $475 million in court-supervised financing. DIP loans sit at the top of the repayment stack and come with budgets and strict milestones that the company must follow to stick with the plan.

What Spirit Needs to Succeed

As Spirit embarks on a new restructuring plan, the path to success is clear. The airline must reduce costs to increase profit margins and maintain a stronger balance sheet for the future. Cutting routes that are not profitable is a great first step for the company, but there is a long way to go to climb out of its current hole.