Spirit Airlines Files Form 12b-25 for Q3 Report Delay

DALLAS — Florida-based low-cost carrier (LCC) Spirit Airlines (NK) announced that it had filed a Form 12b-25 with the SEC (Securities and Exchange Commission), informing them and investors that they wouldn’t be able to submit their quarterly report (Form 10-Q) for the period ending September 30, 2024, by the original deadline.

This filing is expected to be available on the SEC's EDGAR system by November 13, 2024, before the market opens.

Here’s a breakdown of what NK disclosed in its filing:

• Reason for Delay: NK has been heavily involved in restructuring discussions with its senior secured and convertible noteholders. These discussions aim to renegotiate debts due in 2025 and 2026 to improve Spirit's liquidity. While the talks have been productive, they’ve required significant management time and company resources, diverting attention from the process of preparing and reviewing financial statements.
• Possible Outcome of the Restructuring: If NK reaches an agreement with its noteholders, it may undergo a statutory restructuring process. The good news for many stakeholders is that NK expects this restructuring to leave general unsecured creditors, employees, customers, vendors, suppliers, and aircraft lessors unaffected. However, existing equity holders (current shareholders) could see their shares canceled as part of the restructuring. If an agreement isn’t reached, Spirit will consider other options.
• Financial Estimates for Q3 2024: Spirit also gave investors a preview of its estimated financial performance:
  • The company expects its operating margin and adjusted operating margin for Q3 2024 to be around 12 percentage points lower than in Q3 2023.
  • Total operating revenues are estimated to have dropped by roughly US$61 million year-over-year. This decrease is partly due to lower average ticket yields and the removal of change and cancellation fees.
  • Operating expenses have gone up by an estimated US$46 million, while adjusted operating expenses have risen by about US$52 million compared to Q3 2023. These increases mainly stem from higher aircraft rent, other operating expenses, employee wages and benefits, as well as landing fees and rents.
  • Fuel expenses were one bright spot, showing a year-over-year decrease that partially offset the rise in other costs.

What Is SEC Form 12b-25?

If you’re an investor or just keeping an eye on the financial world, you might know what the SEC Form 12b-25 is. While it sounds technical, its purpose is pretty straightforward: this form is what companies use to tell the SEC that they need extra time to file certain financial reports.

If you read Airways, you know we report on U.S. airlines' quarterly financial reports. Publicly traded companies in the U.S. have to submit regular financial reports. These reports are crucial for investors and regulators because they provide insights into a company’s performance and financial health.

The most common reports are:

• Quarterly reports (Form 10-Q): These come out every three months.
• Annual reports (Form 10-K): This is the big yearly report summarizing the full year’s performance.

In this case, NK used Form 12b-25 to provide investors with a heads-up about its financial delay for Q3 and the underlying challenges. This transparency helps maintain investor trust by explaining the delay and sharing financial estimates to avoid surprising the market.

Sometimes, companies run into issues and can’t complete these reports on time. It might be because they’re waiting for certain data, finishing up an audit, or working through some accounting issues. When a company realizes it can’t meet the deadline, it files Form 12b-25 to officially let the SEC (and the public) know.

Of course, for investors, it’s important to know when a company experiences delays in financial reporting. While many delays are caused by routine issues, in some cases, a delay might signal underlying challenges.

Filing Form 12b-25 keeps things transparent, letting investors know there’s a holdup but that the company is actively working on it.

More Than a Holdup

A few hours ago, the Wall Street Journal reported that NK was on the verge of filing for bankruptcy protection. The budget airline is engaged in advanced discussions with bondholders to devise a bankruptcy plan that would garner support from a majority of its creditors—hence the Form 12b-25 filing.

Last month, Bloomberg reported that NK had been in talks with Frontier (F9) about filing for bankruptcy to facilitate a takeover by the rival discount carrier.

Selling NK through Chapter 11 would likely require the advanced approval of its creditors to expedite the process so flight operations don't halt or the airline's cash reserves dwindle as it is already suffering mounting losses and looming debt maturities.

Early-stage discussions between the airlines involved negotiating terms that would be acceptable to holders of NK's approximately US$2.5 billion debt.

The potential filing could occur within weeks, causing NK's shares to plummet by as much as 47% in extended trading.