Court Approves Spirit Airlines Wind-Down Procedures, Grants Aircraft Lease Rejection and Sale Motions

Relevant Documents:
Agenda
Wind-down Order (Entered May 8)

After a lengthy hearing today, Judge Sean H. Lane approved the Spirit Airlines debtors’ proposed wind-down procedures with two exceptions: The U.S. Trustee’s objection to exculpation of parties involved in the wind-down will be heard at a later date, and the debtors’ request to pay retention bonuses to five specific employees will be heard on May 14 at 10 a.m. ET. Judge Lane also granted the debtors’ motions to reject remaining aircraft leases and sell owned aircraft.

The UST did not press its suggestion in the objection that the cases should be converted to a chapter 7 liquidation at today’s hearing. Debtors’ counsel Marshall Huebner of Davis Polk asserted in his opening remarks that every company of the debtors’ size and complexity has liquidated in chapter 11 rather than in chapter 7, adding that conversion of the debtors’ cases would be “simply horrible for all creditors.”

Much of the day was spent in closed-door discussions among the debtors, DIP lenders, official committee of unsecured creditors and the remaining objectors. Near the end of the day, Darren Klein of Davis Polk announced that the UST had agreed to defer the exculpation and retention bonus issues with respect to the five employees, and that numerous trade counterparties, airport authorities, aircraft lessors and insurers had agreed to modifications to the proposed wind-down procedures order.

“It’s nice to know bankruptcy court hallways retain their magical properties” for encouraging resolution of disputes, the judge remarked. The debtors hope to submit a final, agreed-to proposed wind-down order including today’s changes as soon as possible.

By the afternoon, one specific issue remained for Judge Lane: Broward County, Florida, the operator of Fort Lauderdale International Airport, objected to the administrative stay sought in the wind-down motion. Assistant County Attorney Scott Andron said that the county asserts a lien on aircraft at the airport to secure its postpetition, pre-wind-down administrative claims, and feared that during the stay the aircraft would depart from the airport – leaving it with no collateral.

Klein pointed out that the automatic stay prevents the county from asserting any liens on the debtors’ assets, while Huebner added that potential collateral moves during many bankruptcy cases while the automatic stay remains in place. Judge Lane told Andron he has no power to prevent airplanes from leaving the airport without a motion, and suggested that granting Andron relief could lead to other airports asking for the same.

In the end, Judge Lane agreed to carve Broward County out of the administrative stay so it could seek whatever relief it deems necessary, and set a hearing on June 10 at 10 a.m. ET on any motion filed by the county. The debtors’ anticipated administrative claims procedures and bar date motion would be heard at the same time.

Huebner began the hearing with a tribute to the now-defunct airline and appreciation for its employees and the U.S. government for their efforts. According to Huebner, the post-Iran war spike in fuel prices left the debtors needing “hundreds of millions” in incremental liquidity through the end of 2026 alone, and that was “simply not available from any source.”

“Ultimately, for reasons entirely understandable for those involved,” a proposed $500 million federal government investment “could not be advanced and closed,” Huebner continued. The company’s needs were “simply too great” and its “future too uncertain,” Huebner said, leaving cessation of operations on May 2 as the only available option.