Spirit Airlines in deal talks with investment firm Castlelake

Spirit Airlines is in talks with alternative investment firm Castlelake for a potential takeover as the discount carrier looks for a way out of bankruptcy, CNBC has learned.

Spirit filed for Chapter 11 bankruptcy protection for the second time in a year last August after its previous turnaround plan failed.

Other budget carrier Border Airlines It had been in talks with Spirit for years about a potential merger, including in recent months, but was unable to reach a deal, according to people familiar with the matter who requested anonymity to speak about the discussions. The two reached an agreement four years ago, but the deal was canceled after a surprise all-cash offer. JetBlue Airlines.

“We do not comment on market rumors and speculation,” a Spirit spokesperson said. Castlelake did not immediately respond to requests for comment.

It was not immediately clear whether Spirit’s bondholders and Castlelake would reach an agreement or what form the agreement might take. Minneapolis-based Castlelake has been in the aviation finance space for years. In August, it announced it would launch Merit AirFinance, a new aviation lending arm with $1.8 billion in distributable capital.

Spirit said in mid-December that it amended its agreement with creditors to immediately receive another $50 million in funding, providing a lifeline for the carrier. Spirit said additional funding would be contingent on “further progress on an independent restructuring plan or strategic transaction.” in question 15 December. “Spirit is currently in active discussions on each of these possibilities,” the company added.

Spirit has cut flights, downsized its fleet and cut jobs to save money in its fight to survive. Unions last year agreed to pay cuts for the airline’s pilots and flight attendants. In an open letter published on January 13, the Air Line Pilots Association stated that this meant a $100 million concession and called on bondholders to support Spirit’s restructuring and avoid liquidation.

Spirit Dania Beach, Florida-based Spirit has enjoyed largely stable profitability and enviable margins for years in the often challenging airline industry. But things turned around in the wake of the pandemic, when fares and other costs rose, customer preferences changed and an oversupply of domestic flights reduced airfares. This was especially punishing for US-focused carriers, who were unable to take advantage of luxury first-class cabins and great credit card and loyalty program deals.

The carrier’s troubles snowballed as dozens of Airbus planes were grounded starting in 2023 due to a Pratt & Whitney engine recall and a planned acquisition of JetBlue was blocked two years ago by a federal judge who ruled it anticompetitive, leaving both carriers to fend for themselves in an environment dominated by larger carriers.

Spirit has been trying to win over high-spending customers in recent years by offering roomier seats or package rates that include seat assignments and luggage, or allowing changes, to better compete with larger rivals whose profits have been bolstered by post-pandemic big-spending customers.