Spirit Airlines Secures Engine Problem Compensation, Boosting 2024 Financial Outlook

Spirit Airlines has announced a significant financial agreement with International Aero Engines, an RTX Corp’s Pratt & Whitney affiliate, that promises to substantially improve the airline’s cash position in 2024 by $150 million to $200 million. This development comes as a welcome relief for the Miramar-based budget carrier, which had to ground several aircraft due to issues with their geared turbofan (GTF) engines.

The airline disclosed in a recent Securities and Exchange Commission filing that it would receive monthly credits from the engine manufacturer through the end of the year. This compensation is for the service loss of planes grounded for engine inspections and any potential future groundings within 2024. The financial impact of this agreement is pegged between $150 million and $200 million, mainly depending on the cumulative days Spirit’s aircraft are out of service due to engine problems.

By reaching this agreement on March 26, Spirit Airlines has agreed to release International Aero Engines from any claims related to the engines up until the present, as well as any that might emerge before the year’s end.

Spirit, a leading carrier at Fort Lauderdale-Hollywood International Airport and a significant player at Miami International and Palm Beach International airports, has had to adapt its route strategy, cutting unprofitable routes and focusing on more lucrative opportunities. This compensation deal comes as a critical boost amidst rising operational costs and increased fare competition from rival airlines.

The engine issue, identified by Pratt & Whitney in July last year as a “rare condition” affecting some engine parts, led to the grounding of Airbus A320neo aircraft for inspections. This challenge, along with a federal judge blocking Spirit’s proposed merger with JetBlue Airways, had fueled speculation about the airline’s financial health and the potential need for bankruptcy protection to manage looming debts.

However, Spirit’s management has firmly countered these speculations, asserting the airline’s commitment to restructuring its debt through means other than court protection. This stance was further reinforced following the termination of the JetBlue merger, which saw Spirit receiving a $69 million termination fee.

As Spirit Airlines moves forward with 205 planes in operation and $1.3 billion in unrestricted cash and investments by the end of 2023, the agreement with International Aero Engines marks a crucial step in strengthening the airline’s financial footing and operational stability. This compensation, coupled with strategic route adjustments and operational enhancements, positions Spirit to navigate the competitive aviation landscape more effectively.

Sources: AirGuide Business airguide.info, bing.com, sun-sentinel.com