Spirit Airlines’ stock took a major hit, dropping more than 37%, following reports that the budget carrier is contemplating a Chapter 11 bankruptcy filing. The Wall Street Journal broke the news, revealing that Spirit is currently in discussions with bondholders about the possibility of restructuring its debt through bankruptcy proceedings.

This decline is part of a much larger trend for Spirit, which has seen its value plunge by 85% since the start of 2024. Despite a slight rebound in afternoon trading, the airline faces serious financial challenges. The airline is under pressure to refinance $1.1 billion in bonds that are set to mature in 2024, on top of managing over $3 billion in long-term debt. Failure to refinance or restructure its debt could force the airline into insolvency.

The airline’s financial woes have deepened following the collapse of its proposed $3.8 billion merger with JetBlue Airways. The merger, which was seen as a lifeline for Spirit, was blocked by regulators due to antitrust concerns, creating further uncertainty about the airline’s future. Without the merger, Spirit has been left to navigate a challenging environment on its own, and its financial position has only worsened since.

Adding to Spirit’s struggles is its inability to return to profitability, despite strong demand for air travel. In fact, the airline has posted losses in five of its last six quarters. This is despite airfares remaining high due to increased travel demand, which has benefited many other carriers. However, Spirit’s ultra-low-cost model, which relies on high volumes and tight cost management, has not been enough to offset rising operational costs and the impact of high debt servicing.

The airline’s operational issues also play a part in its financial troubles. Spirit has struggled with flight delays, cancellations, and service disruptions in recent years, which have hurt its reputation and further impacted its ability to remain competitive in the low-cost carrier market. The combination of operational inefficiencies and financial instability has led to increasing concerns about Spirit’s ability to continue operating without a significant restructuring.

Despite these challenges, Spirit remains in discussions with its bondholders and stakeholders in an effort to avoid bankruptcy. It is exploring various options to shore up its financial position, including potential refinancing deals, asset sales, and other restructuring strategies. However, if these efforts are unsuccessful, a Chapter 11 filing could allow the airline to continue operating while it reorganizes its debts, but it would be a significant blow to the company’s reputation and market position.

As the situation unfolds, passengers, investors, and employees of Spirit Airlines are bracing for what could be a turbulent period ahead. If bankruptcy proceedings do commence, Spirit may need to make drastic changes to its operations, potentially cutting routes, renegotiating contracts, and scaling back services to stay afloat.

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