Forget Spirit, another major airline files Chapter 11 bankruptcy

Updated: Jan. 26, 9:07 a.m.

Covid changed how people around the world travel and airlines have struggled to adapt. The pandemic, of course, was a financial hit for airlines as even with government support, revenue dropped and, during some of the darker periods, pretty much went away entirely.

While people weren't flying, planes still needed to be maintained and workers still got paychecks. International flights were slashed and, even after vaccines were available, federal law in the United States still mandated mask wearing which comforted some people while making others want to stay away. 

Related: Trendy fast food chain files Chapter 11 bankruptcy

And, then, when normal returned, or at least as much as it has returned, the covid pandemic had changed some habits. People realized they did not need to fly for business as often and some remain wary of large gatherings of people where viruses easily spread.

It became hard for airlines to make route decisions based on past behavior and, as we have seen with Spirit Airlines (SAVE) - Get Free Report, which just saw the U.S. government block its merger with JetBlue, that creates a dire financial situation. Spirit has been losing money and TD Cowen Aviation Analyst Helane Becker believes that the airline's fate is inevitable. 

“We believe Spirit is likely to look for another buyer … but a more likely scenario is a Chapter 11 filing, followed by a liquidation,” Becker wrote. “We recognize this sounds alarmist and harsh, but the reality is we believe there are limited scenarios that enable Spirit to restructure.”

Spirit, however, is not the only major airline facing a Chapter 11 bankruptcy filing.

Brazil's GOL Airline faces U.S. Chapter 11 bankruptcy

One of the biggest challenges airlines face is managing their fleet of planes. It's a problem if you have too many and perhaps an even bigger issue when you don't have enough on order to meet consumer demand for your service.

It's a balancing act made more complicated that Boeing (BA) - Get Free Report, one of two major providers of commercial aircraft for the the world, has fallen behind on deliveries. That has forced successful airlines including Southwest Airlines to change some route plans as it catches up on backordered planes.

Brazil's GOL Airlines does not have the "not enough airplanes" problem. Instead, it has over $4.11 billion in debt on its airplane leases and it's not generating enough cash to pay its debts, according to Simple Flying.   

Update: Gol Airlines has filed for Chapter 11 bankruptcy in New York. The company plans to continue to operate and will take in $950 million in debtor-in-possession (DIP) financing from its creditors, assuming court approval. 

CEO Celso Ferrersaid that the airline does not expect to cut any routes or make changes to its standard of service.

Airlines have used Chapter 11 before

GOL is somewhat following the example of LATAM Airlines which filed for Chapter 11 bankruptcy in 2020. That airline, along with 28 affiliated debtors, each filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York.

The process took 29 months, but the company emerged from bankruptcy with a lower debt load, and it became profitable in 2022. That restructuring offers a model for GOL to follow.

"GOL Linhas Aéreas Inteligentes, or GOL for short, is considering steering for US bankruptcy court to give it the ability to restructure finances if debt management talks collapse. GOL has a fleet of 141 aircraft and, according to ch-aviation’s database, 136 are leased," Simple Flying reported. 

Companies often file for bankruptcy in the U.S. as opposed to their home countries because U.S. bankruptcy laws given them the best chance of negotiating better deals with its creditors.

The airline responded to reports of its pending bankruptcy in a media statement.

“GOL is in discussions with its financial stakeholders about options that would provide greater financial flexibility, including additional capital to finance operations."