Last week, shares of Spirit Airlines took a significant hit, plummeting nearly 40% in premarket trading to $1.36 per share.

The catalyst for Spirit’s stock crash was a report from The Wall Street Journal (WSJ) that revealed the struggling airline was in discussions regarding a potential bankruptcy filing.

What Happened?

According to the WSJ report, Spirit Airlines had entered into discussions with its bondholders about possibly filing for Chapter 11 bankruptcy. This report emerged early last week, leading to the subsequent crash in the company’s shares during premarket trading. By the time the markets opened, Spirit Airlines' stock was down almost 40%, trading at $1.36 per share. The airline’s shares had lost more than 86% of their value since the start of the year.

Why Spirit Airlines Considered Bankruptcy

The WSJ states that the low-cost airline had been grappling with financial challenges for years. Spirit had not recorded an annual profit since before the COVID-19 pandemic, resulting in a significant accumulation of debt. Earlier this year, the company faced a major setback when its proposed merger with JetBlue was blocked.

In 2022, JetBlue had agreed to acquire Spirit in a move that was seen as a lifeline for the struggling airline. The merger would have allowed Spirit to manage its mounting debt. However, the U.S. Department of Justice (DOJ) intervened, arguing that the merger would limit consumer choices and drive up ticket prices. In January, a federal judge sided with the DOJ, blocking the merger and sending Spirit’s shares tumbling by over 45%.

With the JetBlue merger off the table, Spirit’s financial issues remained unresolved. According to the WSJ, the airline’s $3.3 billion debt load became increasingly unmanageable, with $1.1 billion in secured bonds coming due within the next year. This forced the airline into talks with bondholders to seek support for a Chapter 11 bankruptcy filing.

Impact on Passengers and Employees

Spirit Airlines’ financial troubles began to affect its operations even before any bankruptcy filing. Last week, it was reported that Spirit had cut dozens of routes scheduled for November and December, two of the busiest travel months due to the holiday season. Additionally, in September, the airline furloughed 186 pilots in an effort to reduce costs.

Spirit’s uncertain future and mounting financial pressures continue to raise concerns about the company’s ability to sustain its operations. Passengers and employees are left in a state of limbo as the airline navigates its financial crisis.