The DOJ hates Spirit Airlines. Or at least it seems to. For the last few years, the Department of Justice has seem bent on breaking the yellow discount carrier. The no merger with Jetblue, the preferential treatment to other airlines at Washington National airport, and now trying their best to delay their exiting bankruptcy; makes you think whether someone in the administration has it out for the much maligned carrier.
Blue and Yellow Don’t Make Green
It all started with the Jetblue/Spirit merger agreement in 2021. The discount carrier had just ended merger discussions with Frontier Airlines (another ultra low cost carrier (ULCC)). Jetblue came in with an amazing deal for Spirit shareholders (it was so good, the consensus for Jetblue shareholders was “what the heck is the C-Suite thinking?”). Spirit shareholders agreed, even though Jetblue was overpaying, the deal seemed to be in the best interest of the larger airline ecosystem in the US. The DOJ immediately said they would scrutinize the deal. Jetblue went in trying to make a deal with the administration, however, it seems the DOJ wasn’t interested in making a deal: they just didn’t want the merger to happen. Fast-forward a few months, the deal is dead. Jetblue is off the hook, and Spirit is left scrambling to make due.
Frontier did come back to the table, and discussions started to move forward. That ended in no agreement, as Frontier realized they might be better off buying Spirit for parts out of bankruptcy.
Beyond The Scope (of the Perimeter)
The next time the US government dinged Spirit was much closer to the DOJ headquarters. With a number of “beyond perimeter” slots available at Washington National Airport (DCA), Spirit applied for one. DCA is unique, where the airport is slot controlled and the number of flights beyond the scope of perimeter restrictions is strictly controlled by the FAA. The FAA gave American, Delta, United, and Southwest priority. Alaska and Air Canada requested special exceptions as “limited incumbents”. Spirit, Frontier and Jetblue were left to fend off for themselves against the FAA. Ultimately, American, Delta, United, Southwest and Alaska obtained an extra slot. Spirit was left with nothing.
Spirit Chapter 11 Bankruptcy and Prepackaged Exit
Unsurprisingly, Spirit was forced to declare bankruptcy and reorganized. The Wall Street Journal reported that the company had been planning and conferring with creditors. Spirit submitted the Chapter 11 restructuring plan to the court very early on after filing for bankruptcy, making it clear that Spirit planned for this eventuality and had set up a pre-packed bankruptcy plan to its creditors, with most of them giving tacit approval. Prepackaged bankruptcies are not uncommon: they save a lot of administrative time and allow more efficient reorganization of distressed companies where creditors have faith in the company and just need to give it some wiggle room.
Sure, prepackaged bankruptcies have accelerated deadlines, but for most of those types of agreements, a majority of creditors tend to already be onboard. Yet, the DOJ wants to delay proceedings to give some minor creditors a chance to review the reorganization plan. Whether this ultimately delays the exit from Chapter 11, or alters in any way the restructuring plan, remains to be seen. The judge assigned to the case in the Southern District of NY has not yet ruled on the DOJ motion. The DOJ’s decision is not surprising, but the optics aren’t great. The Department seemingly acts against Spirit at every turn. Will the DOJ let Spirit die in the interest of “fairness”, when the airline is already trying everything to turn itself around?
Closing Thoughts
Spirit was one of the first ULCCs in America. Offering no frills, low cost flights in the United States akin to Ryanair and EasyJet in the EU. The era of ULCCs ushered in opportunities for many more Americans to travel, domestically and internationally. Not only that, Spirit has been the butt of many jokes, many of them highlighting the fact that it’s no frills. If you’re paying $19 to go to Orlando, don’t expect a first class experience. Spirit is a pioneer in this field. Yet, the DOJ is trying to torpedo them out of existence. Is it sure that the DOJ hates Spirit Airlines? Probably not, but they do make it look like they do.
The DoJ had nothing to do with any activities between Frontier and Spirit. It never even got that far. The DoJ has wisely blocked the elimination of Spirit by being acquired by jetBlue. Not sure whey you are trying to call out Frontier’s abandoning their tie-up with Spirit as a DoJ action. What is also so wrong with delaying a prepackaged bankruptcy plan? The reason is so that smaller creditors can get a say at least. Again, not sure of your reasoning here. Some bankruptcy proceedings take at least a year.
Had the elimination of Spirit by jetBlue had happened, there is positively no way the larger company would have not filed for bankruptcy. jetBlue was spending way too much to buy them and Spirit was doing its own fair share of burning through cash. That was planned all along — make empty promises to get the elimination approved, then come back months late boohooing asking for all restrictions to be ignored as they filed for bankruptcy. This was their plan all along — private the profits and socialize the risk. At least now, their smaller creditors can get at least some of the money owed to them versus rewarding just the larger vendors.