Spirit Airlines Announces Deferral of Airbus Aircraft Deliveries
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The decision by Spirit Airlines to defer aircraft deliveries has a significant impact on their capital expenditure and liquidity. By postponing the delivery of new aircraft, the company effectively reduces short-term cash outflows, which is reflected in the estimated improvement of $340 million in liquidity over the next two years. This strategic move can be seen as a response to market conditions, potentially due to decreased demand or operational challenges. It's a common practice for airlines to adjust fleet expansion plans to align with market realities.
However, the deferral also suggests that Spirit is expecting a slower growth trajectory or is facing operational issues, such as the mentioned Pratt & Whitney GTF engine availability. The furlough of approximately 260 pilots indicates a downsizing of operations, which could impact investor confidence in the company's near-term growth prospects. On the other hand, the compensation agreement with Pratt & Whitney could partially offset this negative outlook by improving liquidity by up to $200 million.
Investors should monitor how these liquidity improvements will affect the company's debt refinancing capabilities, especially considering upcoming debt maturities. The retention of Perella Weinberg & Partners L.P. and Davis Polk & Wardwell LLP suggests that Spirit is taking serious steps to manage its financial structure.
Spirit Airlines' deferral of aircraft deliveries is a tactical move within the aerospace industry, reflecting broader trends of airlines adapting to post-pandemic market conditions. The deferral of capital-intensive assets like aircraft is a lever that airlines can pull to manage their balance sheets more effectively in uncertain times. This decision by Spirit is particularly noteworthy as it involves a significant number of aircraft over a two-year period, which will delay fleet modernization and expansion efforts.
While this move improves Spirit's short-term financial position, it may also have long-term strategic implications. Delaying fleet growth could impact Spirit's competitive positioning, especially as the travel industry recovers and competitors may continue to expand or modernize their fleets. Additionally, the deferral of the exercise dates for optional aircraft could suggest a more conservative growth strategy in the medium term.
It is also important to consider the relationship dynamics between Spirit and Airbus. The willingness of Airbus to accommodate such deferrals indicates a flexible and supportive approach, which could be beneficial for Spirit's long-term fleet planning and negotiations. However, this also means that Airbus must adjust its own production schedules and financial forecasts to account for the deferred deliveries.
The furlough of 260 pilots by Spirit Airlines is a labor market indicator, reflecting the airline's operational scaling back. This workforce reduction is a direct consequence of the grounded aircraft and delivery deferrals, which reduce the need for pilots. From a labor economics perspective, this move can have ripple effects on the job market, potentially leading to an increase in the supply of pilots seeking employment, which could drive down wages in the industry if the trend is mirrored by other airlines.
The decision to furlough staff is often a last resort and indicates that the company is prioritizing financial stability over growth. The impact on the affected pilots and their families is significant and the company may face challenges in rehiring and retraining pilots once it resumes growth. Moreover, the furloughs can affect employee morale and could potentially damage the company's reputation as an employer, which in turn may impact customer perception.
It is important for stakeholders to consider the long-term implications of such workforce reductions. While it may help Spirit's financial health in the short term, the loss of experienced pilots and the potential degradation of employee relations could pose challenges for the airline when the market conditions improve and demand for air travel increases.
There are no changes to the aircraft on order with Airbus that are scheduled to be delivered in 2027-2029.
As a result of grounded aircraft due to Pratt & Whitney GTF engine availability issues, along with the 2025 and 2026 aircraft deferrals, Spirit announced it intends to furlough approximately 260 Pilots effective September 1, 2024.
As recently announced, Spirit entered into a compensation agreement with Pratt & Whitney regarding its GTF engines, which is estimated to improve Spirit's liquidity between
"This amendment to our agreement with Airbus is an important part of Spirit's comprehensive plan to bolster profitability and strengthen our balance sheet," said Ted Christie, Spirit's President and Chief Executive Officer. "Deferring these aircraft gives us the opportunity to reset the business and focus on the core airline while we adjust to changes in the competitive environment. In addition, enhancing our liquidity provides us additional financial stability as we position the Company for a return to profitability. We would like to thank our partners at Airbus for their continued support and commitment to the long-term success of Spirit."
Christie continued, "I am extremely proud of our dedicated Spirit team for their focus and resilience over the last few years. Unfortunately, we had to make the difficult decision to furlough Pilots given the grounded aircraft in our fleet and our deferral of future deliveries. We are doing everything we can to protect Team Members, while balancing our responsibility to return to positive cash-flow and thrive as a healthy company with long-term growth prospects. I thank the Spirit team for continuing to deliver affordable fares and great experiences to Guests."
The Airbus amendment also defers by two years the exercise dates for optional aircraft included in Spirit's purchase agreement. There is no change to the total number of aircraft on order or Spirit options for additional aircraft.
As previously announced, Spirit has retained Perella Weinberg & Partners L.P. and Davis Polk & Wardwell LLP as advisors. The Company has been taking, and will continue to take, prudent steps to ensure the strength of its balance sheet and ongoing operations, including assessing options to refinance upcoming debt maturities and bonds.
About Spirit Airlines
Spirit Airlines (NYSE: SAVE) is committed to delivering the best value in the sky. We are the leader in providing customizable travel options starting with an unbundled fare. This allows our Guests to pay only for the options they choose — like bags, seat assignments, refreshments and Wi-Fi — something we call À La Smarte®. Our Fit Fleet® is one of the youngest and most fuel-efficient in
Investor inquiries:
DeAnne Gabel
(954) 447-7920
investorrelations@spirit.com
Media inquiries:
Spirit Media Relations
Media_Relations@spirit.com
or
FGS Global
Robin Weinberg / Emily Claffey / Bridget Stephan
(212) 687-8080
Spirit@FGSGlobal.com
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SOURCE Spirit Airlines, Inc.
