Spirit Airlines’ Credit Rating Takes Hit in Fitch Downgrade

On Friday, Fitch Ratings issued a downgrade for Spirit Airlines (SAVE), moving its long-term credit rating from ‘CCC’ to ‘CC’, signaling increased financial distress for the budget airline. This adjustment places Spirit below its North American counterparts, with Fitch warning of a probable near-term default, according to a report by Reuters.

The airline, headquartered in Dania Beach, Florida, has been grappling with financial challenges, reporting losses in five out of the last six quarters despite a generally buoyant travel market. This consistent underperformance has raised concerns about Spirit’s ability to manage its forthcoming debt obligations.

In response to these financial pressures, Spirit has entered into discussions with its creditors. Earlier this week, the carrier disclosed that it is actively exploring strategic alternatives to bolster its liquidity. These talks, involving a significant majority of noteholders, have been described as productive and substantially advanced, with plans for further negotiations in the near future.

Fitch’s analysis highlighted the potential for customer flight from Spirit due to bankruptcy fears, which could exacerbate the airline’s cash burn rate. The agency projects a cash outflow of approximately $600 million for 2024, partially mitigated by expected proceeds from asset sales and compensation from Pratt & Whitney for the grounding of aircraft due to engine problems.

The situation has been compounded by Spirit’s operational challenges, notably the impact of RTX’s Pratt & Whitney engine issues, which have led to the grounding of a segment of Spirit’s fleet in 2024 and anticipated into 2025. This has not only increased operational costs but also introduced significant unpredictability into Spirit’s capacity to operate its aircraft effectively.

Fitch also noted Spirit’s strategic contraction, including the decision to sell 23 older Airbus aircraft and plan for the furlough of 330 pilots in January 2025, reflecting a reduction in its operational scope.

Despite these challenges, Fitch’s recovery analysis suggests an expectation that Spirit would undergo reorganization as a going concern, rather than outright liquidation, should it enter bankruptcy proceedings. This outlook, however, hinges on Spirit’s ability to navigate its current financial distress and secure a viable path forward through negotiations or other strategic maneuvers.

Price Action: At last check, Spirit Airlines shares were down 0.93% in after-hours trading at $1.07. The stock has plummeted 60% over the past five trading sessions and is down a staggering 93% year-to-date.

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