Spirit Airlines, which has been forced to pull planes from service due to potential aircraft engine problems, has informed the investment community it has reached a compensation deal with the manufacturer that could improve the company’s 2024 cash position by $150 million to $200 million.
In a filing Friday with the Securities and Exchange Commission, the Miramar-based discount carrier said it would receive a monthly credit from International Aero Engines, an affiliate of RTX Corp’s Pratt & Whitney, through the end of this year as payment for losing the services of multiple planes that have been grounded— or eventually will be sidelined — for engine inspections.
“The estimated impact of the agreement on Spirit’s liquidity is currently expected to be between $150 million and $200 million, primarily determined by the number of days accumulated in 2024 in which Spirit aircraft are unavailable for operational service due to GTF (geared turbofan) engine issues,” the airline said in the filing.
In exchange, Spirit said it is releasing International Aero Engines from claims tied to the affected engines up until now, as well as any that might arise prior to Dec. 31. The agreement was reached on March 26, according to the filing.
“Spirit intends to discuss appropriate arrangements with Pratt & Whitney in due course for any Spirit aircraft that remain unavailable for operational service after December 31, 2024,” the filing added.
The ultra low-cost carrier is the predominant airline in passengers served at Fort Lauderdale-Hollywood International Airport. It also serves Miami International and Palm Beach International airports. Spirit has juggled a number of routes, cutting those it deemed to be marginal or unprofitable, while adding others where it stands a better chance of making money.
An unwelcome surprise
Last year, Spirit pulled engines from Airbus A320neo planes and grounded some for inspections after Pratt & Whitney told the airline’s management in July of a “rare condition” in powdered metal used to make some of the engine parts.
The deal with the engine maker offers a significant financial breather for Spirit, which has faced rising operating costs such as higher pay for pilots and other staff. At the same time, rival carriers were increasing their fare discounting on a variety of routes. Those issues, coupled with a federal judge’s decision to block Spirit’s proposed $3.8 billion takeover by JetBlue Airways, triggered speculation by some Wall Street analysts that Spirit might need to file for bankruptcy protection to cope with debts coming due in 2025.
But management led by CEO Ted Christie sharply denied that Spirit was headed for court protection, saying the airline would restructure its debt through other means. During a February financial call, Christie called the bankruptcy speculation a “misguided narrative” that was “advanced by an assortment of pundits.”
Later, after the two airlines mutually agreed to terminate their deal following the federal court ruling on antitrust grounds, the two airlines announced Spirit would be paid a $69 million fee by JetBlue.
Spirit ended 2023 with 205 planes in operation and $1.3 billion in unrestricted cash, cash equivalents, and short-term investment securities. For the fourth quarter, it posted a net loss of $183.7 million.