Spirit Airlines, which just 10 days ago warned it had doubts about its ability to operate past June of next year, still has cards to play.
After the financial markets closed Thursday, management announced it made two key moves to solidify the Dania Beach-based airline’s cash position.
The troubled discount carrier said it drew down on the entirety of its $275 million revolving credit line, and negotiated an extended agreement with its credit card processor for another two years. Both steps are expected to give the carrier breathing room as it continues a recovery plan to firm up its customer base, lower costs and eventually return to profitability.
The actions came a little more than a week after the company warned it had “substantial doubt” about its ability to continue flying over the next year unless its business prospects and cash position improved. Spirit, which is still the leading carrier in passengers served at Fort Lauderdale-Hollywood International Airport, emerged from Chapter 11 bankruptcy protection in March with less debt and a sizable equity infusion from major creditors.
But losses continued to hound the company, and instead of expected post-Chapter 11 profits, management posted a loss of nearly $257 million between mid-March and the end of June.
New processing deal, fresh cash
Spirit CEO and president Dave Davis disclosed management’s latest moves to employees in a companywide email about 5:30 p.m. Thursday as Spirit went public with the steps in a filing with the Securities and Exchange Commission.
“We’ve reached an agreement with our credit card processor, Elavon, for a two-year extension, giving us long-term certainty,” Davis told workers in the email. “This agreement reaffirms support from a key financial partner in our plan to move the airline forward.”
Elavon is the merchant services payment subsidiary of U.S. Bank, with whom Spirit has had a multi-year credit card processing agreement.
“Also, as part of our ongoing efforts to strengthen our airline, we’ve decided to draw down our Revolving Credit Facility (RCF),” Davis said. “An RCF is similar to a line of credit and is a standard financing tool available to companies. This provides us with additional cash as we work to return to profitability and will support certain terms of our agreement with Elavon.”
Joe Cavaretta / South Florida Sun Sentinel
A Spirit Airlines jetliner waits to take flight at Fort Lauderdale-Hollywood International Airport. The airline on Thursday announced it borrowed $275 million in fresh cash and renewed a critical credit card processing agreement. (South Florida Sun Sentinel file)
“These are just a couple of the steps we’re taking to better position Spirit as America’s leading value airline,” Davis added. “When we have more news to share, you’ll hear it directly from our leadership team. Let’s keep running a safe operation and taking care of each other and our Guests.”
“Thank you for all you do,” said Davis, a veteran industry executive who took over as Spirit’s CEO and president in April.
According to the SEC filing, the borrowings from the credit line mature on Sept. 30, 2026. The credit card processing deal with U.S. Bank is scheduled to run through the end of 2027. It had been set to expire at the end of this December.
Spirit is paying a price for the extended processing deal. The airline previously noted that USB had requested more funds as collateral as a condition of continuing the credit card processing contract.
In the SEC filing Thursday, the company said it agreed to transfer $50 million in cash to “a pledged account in favor of USB.” It also agreed to allow the bank “to hold back up to $3 million per day until USB’s exposure is fully collateralized.”
‘Going concern’ warning
The SEC filings show the agreements evolved quickly after Aug. 12, when management filed its quarterly financial report and also warned there was “substantial doubt about the Company’s ability to continue as a going concern.’
In a followup message to employees last week, Davis explained the warning was mandated by outside auditors to show the consequences of inaction.
“This is a phrase required by our outside auditors to convey that there is risk if we do not make changes,” Davis noted. “But, we are.”
He added that Spirit would be “moving away from the elements of the business that no longer work.” That meant shedding unprofitable routes and serving destinations that generate a stronger flow of business.
The airline added it might sell aircraft and real estate and shave excess gate capacity at airports. At the end of June, Spirit said it had 215 planes — all Airbuses — in its fleet.
The Spirit work force has not gone untouched. In late July, management announced 270 unionized pilots would be furloughed and 140 captains would be demoted to first officer.
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