Rescue talks for Spirit Aviation Holdings Inc. (OTC:FLYYQ) have stalled over a potential $500 million U.S. government financing package, raising new doubts about whether the bankrupt low-cost carrier can secure a federal lifeline.
Lenders Push Back Against Rescue Terms
Bloomberg News reported Tuesday that a group of lenders, including hedge fund Citadel, is pushing back against proposed terms that could erode the value of their claims and limit recoveries. The group recently made a counterproposal that has gone unanswered.
The roadblock came hours after a Financial Times report had claimed that two of Spirit’s three major creditor groups backed a bailout plan. If all creditor groups agree, a hearing in federal bankruptcy court in New York could be held Thursday, the report had noted.
Trump Floats Buying Airline
President Donald Trump said last week that his administration was considering buying the carrier at the “right price.” “When the price of oil goes down, we would sell it for a profit,” he told reporters.
It was also reported that the rescue could include up to $500 million in government-backed financing. The package would likely begin as a bankruptcy loan to keep Spirit operating, then convert into longer-term financing after bankruptcy, with warrants that could give the government a stake of up to 90%.
Critics Warn Taxpayers Could Carry Losses
The proposal has drawn sharp criticism. Marc Scribner, senior transportation policy analyst at Reason Foundation, told Benzinga that Spirit’s risks should fall on shareholders and lenders, not taxpayers. Calling the loan a “bad investment,” he said federal financing or ownership would transfer the airline’s problems to the public.
Investor Peter Schiff also criticized the idea, saying a taxpayer-funded bailout would violate capitalist principles. Transportation Secretary Sean Duffy has expressed doubts too, warning against putting “good money after bad.”
Spirit, in its second bankruptcy in under a year, has been squeezed by rising costs and higher fuel prices, especially amid the U.S.-Iran conflict. JetBlue Airways Corp. (NASDAQ:JBLU) agreed in 2023 to acquire Spirit, but the deal collapsed under the Biden administration’s antitrust pressure.
Frontier Group Holdings Inc. (NASDAQ:ULCC) and Avelo are also reportedly among several budget airlines seeking a $2.5 billion relief package from the Trump administration in exchange for convertible equity stakes, as the carriers brace for jet fuel prices to stay above $4 a gallon this year.
Price Action: Spirit shares fell 6.01% to $1.72 on Tuesday. The stock’s value has dropped more than 80% in the past year, according to Benzinga Pro.
Benzinga Edge’s Stock Ranking data currently indicates that Spirit Aviation stock is trending downward in the short-, medium-, and long-term.
Photo courtesy: HarrisonKim1 from Shutterstock
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