Spirit Airlines, known for its no-frills and discounted flights, filed for Chapter 11 bankruptcy in November with the goal of implementing a debt-for-equity swap with a small group of bondholders. This decision was meant to reduce interest payments and avoid lengthy legal battles with other creditors, such as unions and plane-lease companies. The company assured its employees, customers, and creditors that the bankruptcy would not impact them, with company lawyer Marshall Huebner stating that it would only affect “99. 9%” of them.

However, the company’s recent announcement has caused concern among investors. Spirit’s revenue has continued to decline, losses have increased, and it is still burning through cash, just five months after emerging from bankruptcy. This has led to a 49% drop in the company’s stock price over the past four days, and an overall decline of 80% since April.

Unlike other airlines that have filed for bankruptcy, such as American Airlines, Delta Air Lines, and Northwest Airlines, Spirit did not make significant cost-cutting decisions during its five-month stint under court supervision. These decisions typically include reducing labor costs, renegotiating financing terms, and freezing pension plans. According to bankruptcy attorney Brett Miller, who represented the official committee of unsecured creditors during the restructuring case, Spirit did not take advantage of all the tools available to improve its business. There were no negotiations with vendors, labor, or aircraft lessors, which is a common practice in the go-forward business-plan process.

Instead, Spirit relied on a deal with a group of major bondholders, including Citadel Advisors, Pacific Investment Management Co. , and Western Asset Management Co. , who agreed to exchange their debt for equity, effectively eliminating $795 million in long-term debt. According to court documents, the company’s business plan predicted a net profit of $252 million in 2025.

However, in a recent filing with the US Securities and Exchange Commission, Spirit Aviation Holdings Inc., the parent company of Spirit Airlines, warned that if it is unable to maintain enough cash, creditors could demand accelerated debt repayments, jeopardizing the company’s survival. Additionally, the company’s credit-card processor has threatened not to renew its contract if Spirit does not increase its collateral, which could impact its ability to accept customer payments.

In response to these concerns, Spirit’s CEO Dave Davis sent a memo to employees stating that the phrase “going concern” in the securities filing is a required statement from the company’s outside auditors and does not reflect the company’s current situation. He reassured employees by highlighting the airline’s growth in stronger markets, re-evaluation of unprofitable routes, and improvements in revenue-management and sales practices. Spirit has also made changes to its original business model of charging only for a seat, and has started offering traditional amenities, like other airlines.

However, the company still faces significant fixed costs, with most employees covered by union contracts.