Discount air carrier Spirit Airlines of Miramar is close to receiving $330 million as part of a massive federal aid program designed to spare the nation’s airline industry from a financial collapse driven by the coronavirus pandemic.
The airline reported the development in a filing with the Securities and Exchange Commission. The money is for payroll for nearly 9,000 employees. The cash has yet to be distributed as Spirit’s agreement with the U.S. government is not final.
The stakes are high for not only Spirit, but for a South Florida community whose residents use the carrier for cheap U.S. and international air service. The airline has commitments to build a new headquarters in Dania Beach, buy 100 new jetliners and expand its route systems in the U.S., the Caribbean and Latin America. Significant numbers of those flights operate to and from Fort Lauderdale-Hollywood-International Airport.
A company spokesman declined to comment Monday.
In an industry that says its passenger traffic has plunged 97 percent since government restrictions took hold to contain the virus, Spirit says it reduced seating capacity from its original plan in April by nearly 80 percent and expects to reduce it by about 75 percent in May. Before the business all but dried up, the company operated 600 daily flights to 77 cities in 16 countries, according to the filing.
Spirit’s financial aid, though, comes with a price as the U.S. Department of Transportation is forcing various airlines to keep serving cities they wanted to leave for financial reasons. Spirit was denied 25 of 26 of its requests to continue service suspensions during the public health crisis.
The airline, which suspended service to airports in New York, New Jersey and Connecticut last month because of government travel advisories, must resume flights there within seven days of receiving the financial aid, according to a published agency decision. The DOT did grant a request to stop flights into Aguadilla, Puerto Rico.
The agency says it wants the flights to remain in order to keep air service running in cities that need it.
Tightening belts
In its SEC filing, Spirit said it has already taken, or intends to take, further actions to preserve and raise cash. They include:
Finding additional financing;
Imposing a hiring freeze except for essential jobs;
Suspending $50 million to $75 million of planned capital spending related to unspecified “non-aircraft” projects;
Reducing planned non-fuel operating costs by $20 million to $30 million;
Holding talks with “significant stakeholders and vendors" about financial support or “contract adjustments during this transition period.”
Spirit said Ted Christie, the chief executive officer and president, temporarily cut his base salary by 30 percent. He became CEO in January 2019, and was making $543,750 in salary as president before the promotion, according to a proxy statement. His total compensation including stock and a bonus was more than $5.6 million. The company said that all senior and executive vice presidents and board members took temporary pay cuts.
Spirit is among the last of the industry’s large passenger airlines to arrange for federal help as the government moves to rescue a major component of the nation’s transportation system.
Ten other airlines besides Spirit notified the U.S. Treasury Department last week that they needed money from a $50 billion pool in loans and grants funded by the $2.2 trillion coronavirus relief bill signed by President Donald Trump on March 27.
And in the wake of United Airlines’ announcement Monday that it lost $2.1 billion in the first quarter of this year, the industry may need more. The losses were nearly four times more than Wall Street expected.
Industry in a spiral
The bailout money is intended to keep 750,000 airline workers on company payrolls through the end of September, Nicholas Calio, president and CEO of Airlines For America, a Washington. D.C.-based industry trade group., said in a statement. Spirit is not an association member, but its plight mirrors that of the rest of the industry.
“Carriers have made cuts everywhere possible from retiring fleet types earlier than scheduled, significantly reducing executive compensation, shutting airport lounges, trimming capital expenditures and offering early retirements,” he said.
Calio said, before the coronavirus slammed the economy, the airlines were carrying 2.5 million passengers and 58,000 tons of cargo daily and on track for a record year. Now, passenger volume is down 97 percent, “equating to a customer level we have not seen since 1954.”
“Airlines have parked 2,400 aircraft, and they are burning through cash at a rapid rate — $10-12 billion a month — as cancellations far outpace new bookings,” he said. As of Monday, the groundings had risen to 2,820 aircraft or 48 percent of the fleet.
About 100 of the nation’s airports are also receiving a $10 billion dose of federal assistance, with $896 million going to large and small aviation facilities in Florida.
As part of the deal, South Florida’s three major airports — Fort Lauderdale-Hollywood International Airport, Palm Beach International Airport and Miami International Airport — are receiving a combined $375 million to help pay operating expenses and debts.
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