Spirit Seeks Approval of Wind-Down Plan After Ceasing Operations, Pins Failure of Second Chapter 11 Reorganization Effort on Fuel Price Spike Triggered by Iran War

Relevant Documents:
Wind-Down Motion
Aircraft Rejection Motion
Aircraft Sale Motion

Early this morning the Spirit Airlines debtors moved for approval for a wind-down of the now-grounded budget airline after spending a total of 362 days over two stays in chapter 11 since first filing in November 2024. According to the debtors, it became clear on April 30 “that sufficient incremental liquidity will not be found, and there are no longer any viable paths to a restructuring or continued operations.”

The debtors pin the failure of their reorganization efforts on “a massive and sustained increase in fuel prices” due to “geopolitical events” – presumably the ongoing U.S. war with Iran – and “a corresponding rapid and unexpected decline in the Debtors’ liquidity situation.” Reports indicated that a potential $500 million U.S. government investment in the airline fell through late last week after prepetition creditors balked at the terms offered by the Trump administration.

In a May 2 press release, CEO Dave Davis thanked the administration “for their extraordinary efforts to try to preserve jobs and service across the country.”

In the wind-down motion, the debtors seek bankruptcy court approval of “an appropriate action plan,” including “passenger and employee safety, aircraft grounding, aircraft crew repatriation, regulatory compliance, retention of key employees, maximization of value, and asset and aircraft security.” The debtors filed separate motions to reject their 66 remaining aircraft leases and sell owned aircraft.

A hearing on the wind-down motions is set for tomorrow, Tuesday, May 5, at 11 a.m. ET.

The debtors filed their first chapter 11 in November 2024 purely to equitize debt and restructure their balance sheet, without any rightsizing of their aircraft fleet or operations, amid discussions over a potential merger with Frontier Airlines. In March 2024, JetBlue terminated its merger agreement with Spirit after a federal judge blocked the combination on antitrust grounds.

In December 2024, Octus questioned the feasibility of the financial projections in support of Spirit’s first bankruptcy plan, warning that suggested improvements in the airline’s offerings “may not be enough to render Spirit competitive.” In August 2025, Spirit filed its second chapter 11 case approximately five months after emerging from the first case, this time with a plan to rightsize its fleet and streamline operations.

A court-appointed examiner concluded that Spirit’s financial projections in the first case were “reasonably supported by information then available, even though later events proved those expectations wrong.” “In hindsight,” the examiner remarked, “it could have been said that the market had started its descent,” but Spirit’s decline “unfolded at a speed and scale that was not reasonably foreseeable” at the time the first plan was confirmed.

Now the debtors attribute the collapse of their second bankruptcy plan to another unforeseeable event: “a massive and sustained increase in fuel prices” due to U.S. attacks on Iran. “When fuel prices spiked and stayed high,” the debtors say, “it became clear to the Debtors that the reorganization contemplated by the Plan was no longer feasible,” and efforts to secure additional liquidity failed.

To fund the wind-down, DIP and prepetition lenders have agreed to the use of cash collateral in accordance with a wind-down budget, which has not been filed. The amended DIP agreement contemplates a further wind-down budget running through July 27. Under the amended DIP, 100% of all cash in excess of the sum of $10 million plus the remaining wind-down budget expenses must be used to repay the term DIP facility.

According to the debtors, the budget, supported by up to $125 million in additional DIP draws, “provides for payment of expenses necessary for the Wind-Down,” including “payment of employee wage obligations for all working employees, payments to necessary critical vendors, and payment of debt service payments in respect of” 20 owned aircraft that would be sold.

The debtors indicate that after wind-down costs and “certain administrative expenses” are paid, they “may be able to pay other administrative expense claims” but “cannot at this time commit to the payment in full of all accrued administrative expense claims.” The debtors thus ask the court for an administrative stay to allow them to complete the wind-down and determine the assets left for payment of administrative claims.

“Although the Debtors view certain first day orders entered in this case as providing the necessary authority to make many of these payments and take many of the necessary actions without additional Court authority,” the debtors say they filed the wind-down motion “to give the Court and all parties in interest visibility into the events forthcoming in the Chapter 11 Cases,” “ensure full legal authority to execute the Wind-Down” and “disclose the events relating to the Wind-Down that took place prior to the hearing on this Motion.”

Specifically, between May 1 and today the debtors “ceased all passenger flights,” began “securing and aggregating the Debtors’ fleet and other assets in appropriate locations with the necessary security” and terminated employees not deemed necessary to assist with the wind-down. The debtors seek approval of a $10.7 million retention plan for certain “non-senior management employees” necessary for the wind-down; the debtors estimate that approximately 150 employees remain.

The wind-down motion also seeks approval to exculpate officers, directors, members of the official committee of unsecured creditors, the DIP agent and professionals. According to the debtors, suits against these parties “might improperly distract or influence the Protected Persons, diverting their attention from their value-maximizing efforts during a critical period for the estates.”