What does it mean for Spirit as it gets back in the air after bankruptcy?

Editor’s note: “Behind the News” is the product of Sun staff assisted by the Sun’s AI lab, which includes a variety of tools such as Anthropic’s Claude, Perplexity AI, Google Gemini and ChatGPT.

 

Spirit Airlines has become one of the most prominent examples in recent memory of what it looks like when an American company attempts to use the courts to survive financial catastrophe — not once, but twice. The Dania Beach, Fla.-based carrier’s parent company, Spirit Aviation Holdings Inc., said Tuesday it expects to exit its second Chapter 11 bankruptcy in the late spring or early summer, after reaching a preliminary deal with lenders and secured creditors. [1]

Before examining how the airline got here and where it is headed, it helps to understand what bankruptcy means — and why not all bankruptcies are the same.

What is bankruptcy?

Bankruptcy is a legal process, governed entirely by federal law under the U.S. Bankruptcy Code, that allows individuals or businesses overwhelmed by debt to either eliminate those debts or restructure them under court supervision. Because it is a federal process, the rules do not vary from state to state.[10]

The goal is two-fold: to give debtors a measure of relief from creditors, and to give creditors a fair, orderly system for recovering what they are owed. The moment a bankruptcy petition is filed, what is known as an “automatic stay” goes into effect — a legal halt on nearly all collection efforts, lawsuits, foreclosures, and repossessions. This breathing room is often the most immediate benefit of filing.[11]

The different types of bankruptcy are named after the chapters of the Bankruptcy Code that govern them. [2]

Chapter 7: liquidation

Chapter 7, often called “straight bankruptcy” or liquidation bankruptcy, is the most common form in the United States. It is available to individuals, partnerships and corporations. Under Chapter 7, a court-appointed trustee takes control of the debtor’s nonexempt assets, sells them and distributes the proceeds to creditors. [2]

For individuals, many personal items — a modest car, basic household goods, retirement accounts — may be protected by exemptions. Once the process concludes, most remaining unsecured debts, such as credit card balances and medical bills, are discharged, meaning the debtor is no longer legally obligated to pay them. [12]

For businesses, Chapter 7 means the end of the road. A company that files under Chapter 7 must cease operations immediately. There is no path to continued business under this chapter — only an orderly unwinding of the company’s affairs. [13]

Chapter 7 cases typically close within three to six months, making it the fastest debt-relief option available.

Chapter 11: reorganization

Chapter 11 is the bankruptcy chapter most often associated with major corporations — and the one Spirit Airlines used. Sometimes called “reorganization bankruptcy,” it allows companies to continue operating while they develop a plan to repay creditors or restructure their obligations. [14]

When a company files Chapter 11, management typically stays in place and continues running day-to-day operations, though all significant business decisions must be approved by a bankruptcy court. The company, referred to as the “debtor in possession,” has an exclusive window of time to propose a reorganization plan outlining how it intends to restructure debts, renegotiate contracts, shed leases and return to profitability. Creditors vote on the plan, and a judge must approve it. [14]

Chapter 11 can also be used by individuals, particularly those who have too much debt to qualify for Chapter 13 or who need to include business debts in their restructuring. However, the vast majority of Chapter 11 cases involve businesses.[15]

A Chapter 11 filing does not necessarily mean a company will survive — a reorganization plan can also call for an orderly liquidation. But the goal, in most cases, is to emerge as a leaner, more financially stable operation. Airlines in particular have used Chapter 11 repeatedly throughout their history. Pan Am, TWA, Continental, United and Delta are among the major carriers that have passed through Chapter 11 at various points. [3]

Chapter 13: The wage earner’s plan

Chapter 13 is reserved for individuals — corporations and other business entities cannot file under this chapter. It is intended for people with a regular income who believe they can repay at least a portion of their debts over time if given the structure of a court-approved repayment plan. [2]

Under Chapter 13, a debtor proposes a repayment plan lasting three to five years, during which a portion of their disposable income is paid to a trustee who then distributes funds to creditors. At the end of a successfully completed plan, most remaining eligible debts are discharged. [16]

Chapter 13 is often chosen by individuals who want to keep major assets — like a home — that might otherwise be at risk in a Chapter 7 liquidation. It also provides protection from foreclosure and repossession during the repayment period. [17]

Other Chapters: 9, 12 and 15

Less commonly invoked, Chapter 9 is reserved for municipalities and government entities — Detroit’s 2013 bankruptcy was one of the largest Chapter 9 filings in U.S. history. Chapter 12 is tailored specifically for family farmers and family fishermen, allowing them to propose seasonal repayment plans that align with their irregular income cycles. Chapter 15 deals with cross-border insolvency cases involving debtors and assets in multiple countries. [18, 19]

Spirit Airlines: A case study

Spirit Airlines became the first major U.S. airline to file for bankruptcy since American Airlines did so more than 13 years earlier — a fact that underscored the severity of its problems. [3]

The carrier’s troubles were years in the making. Spirit had not turned a profit since 2019, before the COVID-19 pandemic devastated air travel. By the time of its first Chapter 11 filing in November 2024, the airline had lost more than $2.5 billion since the start of 2020. [3]

The problems were structural as well as circumstantial. Travelers’ preferences shifted after the pandemic, with many consumers showing a greater willingness to pay for premium perks like extra legroom and lounge access — the very amenities that Spirit’s ultralow-cost, fees-for-everything model lacked. At the same time, major carriers such as Delta, American and United rolled out their own basic economy fares, encroaching on the budget space that Spirit had pioneered and undermining its pricing advantage. [4]

“Ultralow-cost carriers have faced increased competition from legacy carriers,” CNBC reported in January 2025, noting that bigger airlines had “introduced basic economy fares and segmented cabins to cater to more price points.” [4]

Compounding the competitive pressures, Spirit was hit by a significant operational crisis: A manufacturing defect in Pratt & Whitney engines that power its Airbus A320neo fleet triggered a sweeping recall. Approximately 700 engines would be removed for shop visits from 2023-2026, impacting at least 600 jets. [20]

Then came the biggest blow of all.

The failed JetBlue merger

Spirit had spent years trying to find a path forward through consolidation. In 2022, Frontier Airlines struck a deal to merge with Spirit, but that agreement fell apart when JetBlue Airways made a surprise all-cash offer of $3.8 billion. Spirit shareholders ultimately approved the JetBlue deal. [5]

The merger, however, ran into a wall of regulatory opposition. The Justice Department sued to block it, arguing it would harm the price-sensitive travelers who relied on Spirit’s low fares. In January 2024, U.S. District Judge William Young sided with the government, ruling that JetBlue’s takeover would be anticompetitive. [3] JetBlue and Spirit formally terminated the merger agreement in March 2024, with Spirit collecting $69 million in termination fees. [5]

Spirit found itself suddenly alone, saddled with mounting debt and no clear strategic partner. A second potential deal with Frontier also fell apart in the months leading up to Spirit’s first bankruptcy filing. [4, 21]

The 1st bankruptcy

Spirit filed its first Chapter 11 petition in late November 2024, moving quickly through what legal experts describe as a “prenegotiated” restructuring — one in which the company had already reached broad agreement with major creditors before filing, allowing for a compressed court process.[22]

Under the plan confirmed by the U.S. Bankruptcy Court for the Southern District of New York in February 2025, Spirit converted $795 million in funded debt into equity, secured $350 million in new equity investment, and issued $840 million in new senior secured notes. The airline emerged from bankruptcy on March 12, 2025, just 87 days after filing. [6]

But the restructuring was criticized almost immediately as superficial. Rather than using its time in court to restructure operations — renegotiating aircraft leases, cutting routes and transforming the business — Spirit focused almost exclusively on its balance sheet. [7]

The airline emerged smaller in debt but otherwise largely unchanged.

‘Chapter 22’: Back in court

By summer 2025, it was clear the respite had been short-lived. In mid-August, Spirit issued a going concern warning in a quarterly earnings report — a disclosure that signals a company may not be able to continue operating. Less than two weeks later, on Aug. 29, 2025, Spirit Aviation Holdings filed for Chapter 11 protection again. [7]

The swift return to bankruptcy — a phenomenon sometimes called “Chapter 22” in legal circles, a sardonic reference to filing twice under Chapter 11 — prompted serious questions about whether the first reorganization had ever addressed Spirit’s core problems. [8]

“Spirit’s swift return to bankruptcy raises serious concerns about the effectiveness of Chapter 11 as a long-term mechanism for corporate rehabilitation,” wrote Hannah Senecal in the University of Miami Business Law Review. [8]

Spirit announced at the time of its second filing that it would suspend operations in approximately a dozen U.S. cities and furlough 1,800 flight attendants. [1] In the months that followed, it slashed its fleet, recalled some furloughed workers and began the deeper operational overhaul it had avoided during the first round.

The restructuring plan: A ‘new Spirit’

This time, Spirit moved to address structural flaws, not just debt levels. The restructuring plan developed during the second Chapter 11 includes reducing total debt from $7.4 billion to $2.1 billion. [9] The company said it plans to focus on high-demand routes and add premium economy seating and a version of first-class with more legroom — a significant departure from its historic no-frills brand identity.

Spirit also began selling aircraft and calling back furloughed flight attendants in the weeks before the announcement of the creditor agreement — signs that the airline has begun the operational transition even before formally exiting bankruptcy. [9]

The creditor deal announced Tuesday gives Spirit the financial support needed to finalize changes to its fleet, route network and cost structure as it works toward emerging. [1] The company expects to complete that process by late spring or early summer.

 

Sources

[1] https://lasvegassun.com/news/2026/feb/24/spirit-airlines-expects-to-exit-chapter-11-bankrup/

[2] https://www.canb.uscourts.gov/faq/general-bankruptcy/what-difference-between-bankruptcy-cases-filed-under-chapters-7-11-12-and-13

[3] https://www.pbs.org/newshour/economy/spirit-airlines-files-for-bankruptcy-as-financial-blows-pile-up

[4] https://www.cnbc.com/2025/01/05/spirit-airlines-what-went-wrong.html

[5] https://www.cnbc.com/2024/03/04/jetblue-spirit-airlines-merger-called-off.html

[6] https://www.davispolk.com/experience/spirit-airlines-emerges-chapter-11

[7] https://www.hklaw.com/en/insights/publications/2026/02/2025-aviation-bankruptcy-update

[8] https://business-law-review.law.miami.edu/chapter-22-turbulence-spirit-airlines-refiles-for-bankruptcy-just-months-after-exiting-chapter-11/

[9] https://skift.com/2026/02/24/spirit-airlines-reaches-deal-to-emerge-from-bankruptcy/

[10] https://www.uscourts.gov/court-programs/bankruptcy/bankruptcy-basics/chapter-11-bankruptcy-basics

[11] https://www.uscourts.gov/court-programs/bankruptcy/bankruptcy-basics/chapter-7-bankruptcy-basics#:~:text=One%20of%20the%20primary%20purposes,no%20liability%20for%20discharged%20debts.

[12] https://www.cp-law.com/blog/what-assets-are-protected-in-bankruptcy-proceedings/

[13] https://www.uscourts.gov/court-programs/bankruptcy/bankruptcy-basics/chapter-7-bankruptcy-basics

[14] https://www.britannica.com/money/what-is-chapter-11-bankruptcy

[15] https://www.uscourts.gov/court-programs/bankruptcy/bankruptcy-basics/chapter-11-bankruptcy-basics

[16] https://www.uscourts.gov/court-programs/bankruptcy/bankruptcy-basics/chapter-13-bankruptcy-basics

[17] https://www.incharge.org/bankruptcy/chapter-13/#:~:text=Chapter%2013%20gives%20you%20time,secured%20debts%20can%20be%20restructured.

[18] https://www.uscourts.gov/court-programs/bankruptcy/bankruptcy-basics/chapter-9-bankruptcy-basics#:~:text=The%20purpose%20of%20chapter%209,plan%20for%20adjusting%20its%20debts.

[19] https://www.uscourts.gov/court-programs/bankruptcy/bankruptcy-basics/chapter-12-bankruptcy-basics#:~:text=Chapter%2012%20is%20designed%20for,suited%20to%20large%20corporate%20reorganizations.

[20] https://simpleflying.com/global-impact-pratt-whitney-engine-issues/#:~:text=What’s%20happening?,has%20grown%20to%20nearly%203%2C000.&text=As%20reported%20on%20Simple%20Flying,further%20disruption%20to%20our%20customers.%E2%80%9D

[21] https://www.foxbusiness.com/lifestyle/spirit-prepares-bankruptcy-filing-after-failed-frontier-talks-report

[22] https://www.npr.org/2024/11/18/nx-s1-5195224/spirit-airlines-bankruptcy-protection#:~:text=WASHINGTON%20%E2%80%94%20After%20years%20of%20financial,tickets%2C%20credits%20and%20loyalty%20points.