Spirit Airlines is days away from running out of money and the Trump administration is reportedly considering a $500 million government rescue that could hand Washington a 90% stake in the airline. Yes, you read that right. The U.S. government may soon own Spirit Airlines.
Trump confirmed it himself Thursday: “We’re thinking about doing it, helping them out, meaning bailing them out, or buying it.” He added that when oil prices come down, the government could “sell it for a profit.” Make of that what you will.
Spirit AIrlines: How bad is the cash situation?
Spirit’s lawyer Marshall Huebner of Davis Polk didn’t mince words at Thursday’s bankruptcy hearing: the cash Spirit actually has available to fund operations “is not going to last for very much longer.” The deadline he gave? Roughly the end of next week. The airline needs either new financing or access to nearly $240 million of restricted cash that’s currently locked away under bankruptcy loan terms, else it’s done.
What’s on the table?
According to reporting by CNBC, the proposed rescue package includes a $500 million government loan that would give the U.S. a potential 90% stake in the airline, plus the right to appoint a board member. The deal has already been shared with various creditor groups.
Spirit’s CEO Dave Davis is playing it diplomatically: “We are grateful for President Trump’s support and look forward to continuing to work with him and his Administration on a solution that protects thousands of jobs, preserves competition and helps ensure Americans continue to have access to affordable fares.”
The lawyer went further, hinting that a rescued Spirit could eventually be “the strongest player” in airline consolidation, essentially teasing a future merger with another value carrier.
How did Spirit end up here?
This didn’t happen overnight. Spirit has been bleeding for years – an engine recall, the JetBlue acquisition that a federal judge blocked two years ago, customer preferences shifting toward better onboard experiences, a steady jump in costs and now a surge in fuel prices following the U.S. and Israel’s strikes on Iran. The airline had expected to emerge from bankruptcy by mid-year. That plan is now on life support.
The Pundit’s Mantra
A government-owned Spirit Airlines is a genuinely strange proposition. On one hand, the budget carrier argument has real merit, Spirit’s ultra-low fares have kept competitive pressure on every other airline in the markets it serves. When Spirit disappears from a route, fares go up.
On the other hand, the U.S. government has a mixed track record as an airline operator and a 90% stake with board appointment rights is a significant intervention in a private market. This is essentially the nationalization of a major carrier.
What do you think about this deal? Should taxpayers be picking up the tab for Spirit Airlines and bailing them out? Tell us in the comments section.
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