In the grimmest sign yet for stockholders in financially troubled Spirit Airlines, the South Florida-based discount carrier now says that investors would see their shares canceled under a potential debt restructuring agreement that has been under negotiation with bondholders.

If a deal with the debtholders  is reached, the airline said in a statement late Tuesday, it would be put into force “through a statutory restructuring,” but is not expected to “impair” others doing business with the airline such as “general unsecured creditors, employees, customers, vendors, suppliers, aircraft lessors or holders of secured aircraft indebtedness.”

The airline would continue to fly. But if no deal is reached with the noteholders, “the Company will consider all alternatives.” The statement did not outline them.

The airline made the declaration as it asked the Securities and Exchange Commission to be allowed to delay reporting its third quarter financial results, which are expected to show another sizable loss. The company said its operating revenues will be down year-over-year while expenses will show an increase. One factor pressuring revenues, it said, is its decision to stop charging fees to passengers for changing and canceling flights. The higher expenses are being driven by increases in aircraft rents, salaries, wages and benefits, and landing fees.

Spirit’s statement, which was released late Tuesday after the financial markets closed, crushed the airline’s stock price by more than 62% in after hours trading, with the shares declining to $1.21 from $3.22 on a volume of more than 17.8 million.

Another bankruptcy report

The downward action was also fueled by another Wall Street Journal report that the airline is preparing for a Chapter 11 bankruptcy filing after onetime suitor Frontier Airlines walked away from renewed merger talks.

Spirit did not respond to direct questions from the South Florida Sun Sentinel about whether the airline will end up in bankruptcy court or whether Frontier had, in fact, given up on another merger effort.

Spirit is the predominant airline in passengers carried at Fort Lauderdale-Hollywood International Airport, serving roughly 90 destinations in the U.S, the Caribbean and Latin America. Earlier this year, it moved into an 11-acre-plus headquarters campus in Dania Beach that includes corporate housing and flight training facilities.

A source familiar with the matter summed up Spirit’s status this way:

• “As previously disclosed, Spirit has been in active and constructive discussions with noteholders regarding restructuring its upcoming debt maturities.
• The negotiations have remained productive, have advanced materially, and are continuing.
• Spirit expects its restructuring process to have no impact on Guests, who can continue to fly and book exactly as they currently do.
• If Spirit were to undertake a restructuring, it is expected that Spirit’s existing equity would be cancelled.”

One South Florida financial restructuring specialist who is not involved in the Spirit matter suggested the airline’s phrase, “statutory restructuring,” is a euphemism for a bankruptcy proceeding.

“Chapter 11 is a statutory scheme,” said Joseph Luzinski, senior managing director of the firm DSI in Miami and Fort Lauderdale. “What they’re saying is ‘we’re very close to having a deal.’ They’re still negotiating and haven’t completely finalized it yet.”

In a note to clients Tuesday, Raymond James analyst Savanthi Syth said the Spirit statement validated her firm’s belief that current shareholder investments are in jeopardy, a bankruptcy filing is “likely” and that Frontier may still end up merging with Spirit.

“Spirit noted that the agreement being discussed with key creditors (senior secured notes due 2025/convertible senior notes due 2026) is expected to lead to the cancellation of existing equity, but would not impair general unsecured creditors,” she wrote. “If a definitive agreement with these bondholders is not reached, Spirit will consider all alternatives, which in our opinion is likely a Chapter 11 filing that is likely to result in a similar outcome for current equity holders.”

“We continue to believe that a merger with Frontier is likely once the balance sheet/fixed costs have been resized to the smaller operating footprint.” she added.

Spirit ended up flying solo after two years of what became exhaustive merger and acquisition discussions with Frontier and then, JetBlue Airways of New York.

In 2022, the Denver-based carrier was essentially jilted when JetBlue offered $3.8 billion to acquire Spirit in a takeover deal. But earlier this year, a federal judge in Boston blocked the acquisition after the Justice Department sued on antitrust grounds.

Cutting costs, raising cash

Spirit then undertook proactive measures to deal with oncoming maturities of $3.3 billion in debt, as well as pricing, service and route network adjustments in response to growing competition from bigger airlines. It also borrowed $300 million from its credit line. The company has said it would end the year with $1.1 billion in liquidity.

Late last month, Spirit disclosed an extensive plan to cut costs and raise fresh cash when it sold 23 older Airbus aircraft to GA Telesis, a Fort Lauderdale-based aviation firm. The sale was to have brought $519 million, Spirit said in a regulatory filing.

Spirit management has also disclosed plans to reduce its expenses by $80 million early next year, mostly through cuts in the work force. The airline aid it would furlough another 330 pilots at the end of January, a cutback that would follow the furloughs of 186 pilots in September. The airline said its hand was forced by a need to realign its staffing amid reductions in capacity and the continued grounding of aircraft for engine inspections triggered by a manufacturers recall.

Also last month, management delayed a deadline to refinance more than $1 billion in debt until late December as it continued talks with its credit card processor.

Spirit has not turned a net profit since before the COVID-19 pandemic, as other airlines have stepped up their competition, the engine recall disrupted operations and rising expenses have outdistanced revenues. In the second quarter of this year, it posted a net loss of more than $192 million.