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Spirit Airlines Reaches Agreement with Engine Supplier
Spirit Airlines recently announced that it had come to an agreement with the engine supplier for its Airbus planes. This agreement will credit the carrier for planes it cannot fly due to a parts flaw, estimated to be valued between $150 million and $200 million.
Technical Issues with Pratt & Whitney Engines
Last July, Pratt & Whitney, an aerospace manufacturer, discovered a critical issue with the metal used in its PW1100G-JM geared turbo fan engines. The problem was specifically identified in powdered metal high-pressure turbine and compressor discs. Due to the potential for cracks, all engines with this defect had to undergo inspection or be removed from service to mitigate any risks.
It is worth noting that Airbus utilizes the PW1100G-JM engines for its A320neo planes, which are also used by Spirit Airlines. As a consequence, Pratt & Whitney’s parent company RTX revealed in September that it would incurr a $3 billion charge related to this issue.
Financial Implications and Compensation
Spirit Airlines had previously expressed concerns about the impact of this situation on their near-term growth projections. In their annual report issued in February, the company mentioned discussions with Pratt & Whitney regarding compensation for the loss of utilization. The specifics of the compensation, including amount, timing, and structure, were uncertain at that time.
However, with the recent agreement in place, Spirit Airlines now has a significant liquidity boost. This financial support comes at a crucial time as the company navigates a future without JetBlue Airways. The planned $3.8 billion merger between Spirit Airlines and JetBlue Airways was thwarted by a judicial ruling on anti-trust grounds. As a result, the airline is faced with over $1 billion in debt due within the next few years, leading creditors to prepare for potential bankruptcy.
Despite these challenges, there is some positive news for Spirit Airlines, as their notes due next year were trading at their highest price since October, reaching about 76 cents on the dollar on Monday.
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