By: chris skinner November 9, 2024

Spirit Airlines Files for Chapter 11 Bankruptcy Following Failed Merger

Spirit-JetBlue Merger Blocked for Anti-Trust Reasons

Spirit Airlines and JetBlue Airways attempted a merger. As explained by the United States Department of Justice (DOJ), that proposed merger was blocked by a federal court on antitrust grounds. The court decision followed a lawsuit by the DOJ which argued that the merger would reduce competition in the airline industry—and potentially lead to higher fares and fewer choices for consumers. Antitrust laws are regulations that promote competition by restricting monopolistic practices and corporate activities that could suppress fair competition in the marketplace. These laws aim to protect consumers by preventing monopolies.

Spirit Airlines has Filed for Chapter 11 Bankruptcy Protection

Spirit Airlines has filed for Chapter 11 bankruptcy protection. The company, in part, cites the failed attempted merger. Notably, Spirit had, at one time, also attempted to merge with another competitor (Frontier). As part of its Chapter 11 bankruptcy filing, the financially-distressed airline is seeking to restructure its debt and improve its financial situation.

Discount Airline Plans to Continue Operations During Restructuring

To be clear, Spirit Airlines is not shutting down. Indeed, the CEO of the airline wrote to all customers stating that it plans to complete all currently scheduled flights without any additional disruption related to the Chapter 11 bankruptcy filing. The airline aims to operate “business as usual” during its financial restructuring process. It emphasized that all tickets, credits, and loyalty points will remain valid and should be honored. The announcement has been a relief to travelers who are understandably worried about potential disruptions during the upcoming holiday season.

A Chapter 11 Bankruptcy is a Reorganization Bankruptcy

Chapter 11 bankruptcy is one of the most common types of commercial bankruptcy. It primarily exists as an option for companies that are seeking to restructure overly burdensome debt and exit the bankruptcy process in a healthier, more sustainable financial position. Here are four key points to understand about Chapter 11 bankruptcy:

The Goal is Reorganization, Not Liquidation: Chapter 11 bankruptcy is not about shutting down a business. Indeed, the Chapter 11 bankruptcy process is fundamentally designed for reorganization rather than liquidation. It is a form of bankruptcy that allows a company to restructure its debts and modify its business operations to become profitable again—while still continuing day-to-day activities during the process. Unlike Chapter 7 bankruptcy—which does involve the liquidation of all assets to pay creditors—Chapter 11 supports a business’s goal to remain operational. As long as a company has a path towards continued operations, Chapter 11 bankruptcy may be a viable option.

Automatic Stay Halts Most Creditor/Debt Collector Action: Filing for Chapter 11 bankruptcy protection can, by itself, provide a reprieve to a financially distressed company. When a business files for Chapter 11 bankruptcy, it will be protected by an automatic stay. An automatic stay is a legal provision that halts all collection activity against the debtor—from notices to lawsuits to foreclosures. The stay is designed to prevent creditors from taking separate action to recover debts outside of the bankruptcy process. It helps to confirm that all existing claims against a business—of which there may be many—are addressed uniformly within the reorganization process. While only temporary, the automatic stay often provides some much needed financial breathing room for businesses.

Debtor in Possession (DIP) Operates Company With Court Oversight: Under Chapter 11 bankruptcy, the company filing for protection—termed ‘debtor in possession’ (DIP)—retains control of its assets. It will continue to operate its business while the bankruptcy is pending. However, once in DIP status, it will do so under the supervision of a court. The arrangement allows the debtor (DIP) to manage its day-to-day operations while restructuring. The court’s oversight helps to ensure transparency, compliance with the restructuring plan, and proper protection for creditors.

A Reorganization Plan Must Be Confirmed: To finalize a Chapter 11 bankruptcy, the debtor company must propose a reorganization plan. It is that plan that will outline how the company will handle its debts and financial obligations going forward. The Chapter 11 reorganization plan requires approval from creditors and confirmation by the bankruptcy court to ensure it meets specific legal requirements and is feasible. Notably, creditors are grouped into classes based on claim type and priority. They will vote for (or against) the plan as part of their class. A court can force (cramdown) a Chapter 11 reorganization plan against the will of certain creditors if deemed warranted by the circumstances.

Why Trust Our Los Angeles Bankruptcy Lawyer for Help With a Chapter 11 Filing

For small and mid-sized businesses, navigating the Chapter 11 bankruptcy process is not easy. Chapter 11 bankruptcy protection may be the best option to restructure overly burdensome debt and move the company towards a brighter, more sustainable financial future—but there are a lot of issues that need to be addressed and resolved. Le’Roy Roberson is an experienced business bankruptcy lawyer. Attorney Roberson is always prepared to put clients first. We provide proactive, attentive, and solutions-focused legal guidance and support in Chapter 11 bankruptcy cases.

Contact Our Los Angeles Bankruptcy Attorney for Immediate Help

At Resolve Law Firm, APC, our Los Angeles bankruptcy attorney has the skills and experience to help companies navigate the Chapter 11 bankruptcy process. If you have any questions about filing for Chapter 11 bankruptcy protection, we are here to help. Contact ustoday for a completely confidential consultation. We handle bankruptcy cases in Los Angeles and throughout California. Your initial 30-minute phone consultation is free, fully private, and carries no obligations.