When word got around that Spirit Airlines, Inc. (NYSE:SAVE) was considering a bankruptcy filing, critics quickly took to social media to blame the Biden administration.
Why? Recall how, in January, U.S. antitrust regulators successfully blocked JetBlue Airways Corporation (NASDAQ:JBLU) from buying Spirit for $3.8 billion. Indeed, over the past four years, regulators often hold up M&A activity they consider anti-competitive, such as the $25 billion merger between Kroger Co. (NYSE:KR) and Alberstons Companies, Inc. (NYSE:ACI).
The JetBlue/Spirit scenario was no different. Fast-forward to this week: The Wall Street Journal reported Spirit is in talks with bondholders and creditors to see if a Chapter 11 bankruptcy is the best option for the troubled carrier.
The JetBlue deal would have saved jobs and the airline, observers argued. It’s worth noting Spirit’s problems stem from having to ground several Airbus planes due to turbofan engine problems.
Bank of America Securities analysts noted in January that Spirit’s ongoing engine repairs hurt “the traditional ultra-low cost business model.”
Dania Beach, Florida-based Spirit also attributed its financial struggles to an “intense competitive battle” for price-sensitive leisure travelers, as well as an oversupply of airline seats in the domestic market.
“You can think [sic] Biden and his FTC crew for this. Way to go Joe!” a social media user posted.
Precedent shows that a deal with JetBlue wouldn’t have been a safety net for Spirit as most major airline mergers lead to job losses, regardless of whether the target is a distressed asset.
See Also: Spirit Airlines Engages In Bankruptcy Talks Amid Financial Struggles
The scale and impact can vary depending on several factors such as the size of the merger. Here are a few examples of job losses from major mergers:
- American Airlines (NASDAQ:AAL) and US Airways: After the 2013 merger, there were several thousand job losses. Estimates ranged from 1,500 to 3,000 positions cut.
- United Airlines (NASDAQ:UAL) and Continental Airlines: The 2010 merger resulted in the elimination of roughly 1,500 to 2,000 job losses. These cuts were primarily due to redundant corporate and administrative positions.
- Delta Air Lines, Inc. (NYSE:DAL) and Northwest Airlines: While the 2008 merger helped the combined airline grow, but also led to an estimated 2,000 to 3,000 job losses.
Airline mergers often lead to route and capacity optimization, reducing staffing needs in less profitable areas. Cost synergies, like lowering fuel and labor costs, can prompt additional cuts as well. Fleet consolidation may phase out older aircraft, affecting technical staff.
Union agreements and labor contracts might also lead to layoffs as the merged airline harmonizes pay and benefits across the workforce.
While not all mergers result in severe job losses, neither do bankruptcies. Jobs can sometimes be saved when a company files for Chapter 11, since the process allows a company to reorganize its debts and operations while continuing to operate, giving it a chance to become financially viable.
During this process, the company may restructure contracts, renegotiate with creditors and streamline operations, which can help preserve jobs that would otherwise be lost in a complete liquidation. While layoffs may occur, Chapter 11 provides more opportunities for the business to recover and protect a portion of its workforce.
Spirit’s debt load hovers around $3.3 billion, per the Wall Street Journal.
Recent airline bankruptcies include Virgin America and Monarch Airlines, both in 2017; WOW Air in 2019; and LATAM Airlines Group SA (NYSE:LTM) in 2020. LATAM emerged from bankruptcy in 2022 stronger and is now larger and leaner, according to Morgan Stanley analysts.
What’s Next: It remains to be seen whether Spirit will follow through with bankruptcy. At last check Friday, Spirit stock is trading 26.28% lower at $1.66, according to data from Benzinga Pro.
The stock has lost more than 85% of its value in 2024.
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