Spirit Airlines (NYSE:SAVE), has finalized a significant agreement with International Aero Engines (IAE), a subsidiary of Pratt & Whitney. In this agreement, IAE will provide monthly credits to Spirit Airlines until the conclusion of the present year. These credits will compensate Spirit Airlines for each aircraft grounded due to issues with geared turbofan (“GTF”) engines, which were identified in July 2023. GTF engines are manufactured by Pratt & Whitney.
This agreement, expected to enhance Spirit’s liquidity by $150 million to $200 million, is contingent upon the number of days aircraft remain grounded due to engine problems throughout 2024. Furthermore, Spirit has agreed to waive any claims against IAE related to affected engines until the year’s end, with further discussions slated with Pratt & Whitney for ongoing support beyond 2024.
Spirit Airlines, a major operator of GTF-powered aircraft in the United States, has encountered significant difficulties arising from engine-related issues. The airline has encountered difficulties in grounding its A320neo fleet for inspections and expects an increase in the number of grounded aircraft, rising from an average of 13 in January to around 40 by December 2024.
Spirit has also grappled with rising operating costs, disruptions in the supply chain, and financial pressure, exacerbated by the collapse of a proposed merger with JetBlue Airways (NASDAQ:JBLU).
In March, JetBlue’s $3.8 billion acquisition of Spirit Airlines was called off on antitrust grounds. JetBlue’s management believed that the legal and regulatory approvals required for the deal’s success were unlikely to be obtained by the specified dates. Following the termination, JetBlue paid Spirit $69 million, resolving all outstanding matters related to the deal. During the period when the merger agreement was in effect, SAVE shareholders received approximately $425 million in total prepayments.
These developments have raised concerns about SAVE’s ability to manage debt obligations. The agreement with IAE marks a crucial step for Spirit Airlines in navigating these challenging times. As the airline strives to address its liquidity concerns and stabilize operations amid broader uncertainties within the aviation industry, the partnership with IAE offers a lifeline.
In terms of price performance, Spirit Airlines shares have plunged 70.5% year to date, contrasting with the industry’s gain of 7.7%.
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