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Spirit Airlines Gets Refueled With $100 Million in Equity

Posted on: Tuesday, 19 July 2005, 15:00 CDT

Jul. 19--Spirit Airlines, hit hard by high fuel and maintenance costs on its aging fleet, is getting $100 million in new equity from its majority owner Oaktree Capital Management, and from airline management and Goldman Sachs. The move will speed up its switch to an all-Airbus fleet and support its fuel-hedging program.

Oaktree and Spirit management are injecting $70 million, and Goldman Sachs Credit Partners is investing $30 million in the low-cost carrier, which is expanding in Latin America and the Caribbean.

Privately-held Spirit, based in Miramar, wouldn't say how the investment will change its ownership structure, other than to say that Oaktree remains a majority investor and Goldman will become a shareholder.

"What this financing does is give Spirit the ability to aggressively implement its business model, including fleet transition and network plan, in a difficult industry environment," said Spirit President Ben Baldanza.

Spirit lost $75 million in the last quarter of 2004 on $112 million in revenue, according to data filed last week with the U.S. Department of Transportation.

Ray Neidl, airline analyst with Calyon Securities, said Spirit needs the cash infusion.

"Because of their older fleet and sky-high fuel prices, they probably have been disproportionately affected more than any other airline," he said.

Goldman Sachs spokesman Michael Duvally wouldn't comment on its investment or ownership stake; Oaktree Capital didn't immediately return a call seeking comment.

But a source familiar with the company said the stake held by Spirit CEO Jacob Schorr and other managers will drop to about 15 percent from 49 percent.

Previously, Schorr alone controlled 37 percent of the airline. His ownership fell from 75 percent in February 2004, after Spirit sold a 51 percent stake in the company to Oaktree, a Los Angeles-based private investment firm, for $125 million.

For years, Spirit's big challenge in holding down costs has been its aging fleet of MD-80s, which guzzle fuel and incur steep maintenance costs. With Oaktree's initial investment in March 2004, the airline was able to order 35 new, more efficient Airbus jets, valued at $2 billion. It planned to complete delivery of the 29 Airbus A319s and six Airbus A321s in 2008, keeping some MD-80s in its fleet until 2009, Baldanza said.

But now Spirit will speed up delivery, completing its conversion to an all-Airbus fleet by early 2007. Spirit already has 11 new Airbus planes and will get five more by year-end, he said.

"The transition plan in place after March 2004 didn't work for the company, so we clearly needed to transition the fleet faster," Baldanza said.

Spirit will also expand its fuel hedging into 2006, as it continues to add more flights to the Caribbean and Latin America.

In November, after Spirit adds flights to destinations like Kingston and Montego Bay, Jamaica, the carrier will have 30 daily flights to and from the Caribbean and Latin America, or 24 percent of its flight schedule, said Spirit spokeswoman Lynne Koreman.

Coral Gables aviation consultant Stuart Klaskin said the new equity investment will help Spirit aggressively expand in the region.

"An infusion of new equity is precisely what the company needs right now," said Klaskin, partner in KKC Aviation Consulting. "It is a very good thing for this company as an ongoing business."

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Source: The Miami Herald

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