Fitch Ratings (one of the three major credit ranking organizations) downgraded the long-term credit rating of Spirit Airlines
from ‘CCC’ to ‘CC.’ This suggests the credit rating agency sees a Spirit near-term default as probable. This comes amid reports that
Spirit Airlines could be on the brink of bankruptcy
.
Spirit Airlines given probable default credit rating
Spirit Airlines is currently in talks with creditors and is exploring alternatives to improve liquidity. The airline has reported that the talks have shown promise, with Reuters stating, “the negotiations, with a supermajority of noteholders, remained productive, advanced materially, and would resume in the near term.”
Photo: Robin Guess | Shutterstock
“The Dania Beach, Florida-based airline has been losing money despite robust travel demand. It reported losses in five of the past six quarters, casting doubt on its capacity to address upcoming debt obligations.” – Reuters
Fitch stated in its report, “Spirit now faces the risk that customers may increasingly opt to book away towards other carriers, fearing a potential bankruptcy, thus accelerating the company’s cash burn.” Fitch also pointed out Spirit’s decision to sell 23 of its older Airbus aircraft and to furlough 330 pilots in January 2025.
“The downgrade follows Spirit’s announcement that negotiations with its noteholders had advanced and that an agreement, if reached, would be effectuated through a statutory restructuring. A near-term default now appears probable.” – Fitch
Photo: MKPhoto12 | Shutterstock
Fitch expects the company’s 2024 cash outflow of around $600 million to be
partly offset by proceeds from asset sales and compensation from Pratt & Whitney for earlier engine woes
that prevented aircraft from being used. Issues with Pratt & Whitney’s RTX engines forced Spirit (and other airlines) to ground parts of their fleets in 2024 and 2025.
Fitch defines ‘CCC’ as “Substantial credit risk, Very low margin for safety. Default is a real possibility.” While ‘CC’ is “Very high levels of risk, Default of some kind appears probable.”
Related
The Global Impact Of The Pratt & Whitney Engine Issues
The issue led to a $5.4 billion charge to RTX, parent company of Pratt & Whitney.
A bad credit rating
The other major credit rating agencies, Standard & Poor’s and Moody’s, have also given Spirit a poor rating. In January 2024, Standard and Poor’s downgraded the airline to “CCC” – defined by the credit agency as “Currently vulnerable and dependent on favorable business, financial and economic conditions to meet financial commitments.”
Photo: Spirit Airlines
Moody’s gave Spirit a credit rating of “B2” in September 2023. B2 is for investments considered speculative and are subject to high credit risk.
By contrast, in July 2024, Fitch upgraded Delta Air Line’s credit rating to BBB-. BBB- is considered investment grade and is defined as “‘BBB’ ratings indicate that expectations of default risk are currently low. The capacity for payment of financial commitments is considered adequate, but adverse business or economic conditions are more likely to impair this capacity.” American Airlines has a credit rating of B+. Any Fitch rating below BBB (BB and lower) is considered speculative or junk.
Photo: Spirit Airlines
The United States government has a Fitch credit rating of AA+ (one notch below its highest credit rating). Only a very few countries enjoy a “AAA” credit rating, while some countries (like Russia) have had their ratings cut to junk status (Russia is rated CCC- by Standard and Poor’s).