As you have no doubt heard, Spirit Airlines, Inc. filed for bankruptcy this morning in the U.S. Bankruptcy Court for the Southern District of New York under Chapter 11.  The filing is designed to implement a restructuring support agreement supported by a supermajority of Spirit’s investors and is intended to allow Spirit to emerge from bankruptcy as a financially healthy business entity.  Spirit expects to continue operating in the ordinary course of business throughout the bankruptcy proceeding.   Behind the scenes, however, it is important for airport sponsors to be aware of several things:

• Today, November 18, 2024, (the “Petition Date”) is a critically important date.  It sets a demarcation between the “old” airline (now called the “Debtor” or the “Debtor in Possession”) and the airline operating under bankruptcy protection.  For airport sponsors’ accounting teams, this means that a clear line needs to be drawn between amounts owed by Spirit prior to the Petition Date and those amounts which come due post-Petition.
• Spirit’s filing triggers “automatic stay” protection under federal bankruptcy law.  That means that it is generally unlawful for an airport sponsor to make any effort to collect a debt owed by Spirit prior to the Petition Date.  Airport sponsors’ staff should be immediately instructed to discontinue any attempts at collection without seeking specific legal advice. 
• Federal law contains special protections for Passenger Facility Charges in bankruptcy proceedings.  It is important to review the payment status of any PFCs collected by Spirit.  If they are past due, calculate what is needed to catch up.  Such arrears may need to be addressed in short order in the bankruptcy case, in response to Spirit’s initial filings.
• While Spirit’s operations may be “business as usual” at first, Spirit may ultimately seek to shed unproductive obligations through the bankruptcy process, among which may be agreements with airports.  Airport sponsors should immediately collect all agreements with Spirit and think through any operational implications were those agreements to be rejected.
• While it may be some time before we understand whether and how much of Spirit’s “pre-Petition” debt will be satisfied, the Bankruptcy Code requires that Spirit remain current as to post-Petition amounts that become due.  Should Spirit fall behind on post-Petition charges, it is essential that an airport sponsor quickly alert the bankruptcy court through counsel.  Accounting staff should closely monitor payments from Spirit moving forward. 

Kaplan Kirsch is reviewing the so-called “First Day Motions” filed in the proceeding, which set the initial rules for the proceeding and may have additional impacts on the airports where Spirit operates.  It is important that airports at which Spirit operates move quickly to ensure their interests are protected throughout the proceeding, and particularly in these early stages where deadlines come fast, and the implications can be significant. 

As with the rental car bankruptcies during the early days of the COVID-19 pandemic, Kaplan Kirsch anticipates that several of our airport clients will ask that we assist them in creating a consortium of airports to broadly represent the interests of the airport industry throughout this proceeding.  Consortia allow the costs of engaging bankruptcy counsel to be shared among multiple clients, and generally afford airports more leverage in bankruptcy proceedings.  If you are interested in receiving more information about the Spirit bankruptcy or about a potential consortium, please contact Eric Smith or any Kaplan Kirsch attorney with whom you regularly work.