Spirit Airlines (SAVE) Issues Guidance Update

The first quarter 2024 and full year 2024 estimates and guidance provided below are based on Spirit Airlines (NYSE: SAVE) current estimates and are not a guarantee of future performance. The Company’s unaudited interim consolidated financial statements for the first quarter 2024 are not yet complete and results for first quarter 2024 may vary from these preliminary estimates upon completion of closing procedures and finalization of the unaudited interim financials statements. There could be significant risks and uncertainties that could cause actual results to differ materially, including the risk factors discussed in the Company's reports on file with the Securities and Exchange Commission. Spirit undertakes no duty to update any forward-looking statements or estimates.
On March 26, 2024, Spirit entered into an agreement (the “Agreement”) with International Aero Engines, LLC ("IAE"), an affiliate of Pratt & Whitney, pursuant to which IAE will provide Spirit with a monthly credit (the “IAE credits”) through the end of 2024, subject to certain conditions, as compensation for each Spirit aircraft unavailable for operational service due to PW100G-JM geared turbo fan (“GTF”) engine availability issues (“AOG aircraft”).
The estimated impact of the Agreement on Spirit’s liquidity for the full year 2024 is currently expected to be between $150 million and $200 million. Spirit intends to discuss appropriate arrangements with Pratt & Whitney in due course for any Spirit aircraft that remain unavailable for operational service after December 31, 2024.
In its initial first quarter 2024 adjusted operating margin guidance, the Company estimated it would recognize approximately $38 million of credits for AOG aircraft and that these credits would be an offset to other operating expense during the period in which the AOG occurred. After further consideration of the relevant accounting guidance, it has since been determined that the credits will be accounted for as vendor consideration in accordance with ASC 705-20 and will be recognized as a reduction of the purchase price of the goods and services acquired from IAE during the period, which may include maintenance costs, purchase of spare engines and short-term rentals of spare engines, based on an allocation that corresponds to the Company’s progress towards earning the credits.
This accounting treatment will result in delayed recognition of a significant portion of these credits in the Company’s consolidated statement of operations because they will initially be recognized as a reduction to the cost basis of capitalized maintenance and/or spare engines.
Given the above referenced change in accounting for the IAE credits, Spirit now estimates it will recognize approximately $1.6 million of credits related to AOG aircraft in the first quarter 2024. The change in accounting for the AOG credits drives a variance of approximately 300 basis points of operating margin for the first quarter 2024. Despite the estimated amount of credit recognized during the quarter being significantly less-than-expected, total operating expenses for the quarter are estimated to be in line with the Company’s previous guidance primarily due to better-than-expected operational efficiencies that drove less labor and other expense. In addition, airport rents and landing fees are estimated to come in favorable compared to the Company’s original forecast due to signatory adjustments and lower airport rent expense driven by network changes. Spirit currently estimates its first quarter 2024 adjusted operating margin will be negative 14.5 percent to negative 13.5 percent. If the Company had recognized all the AOG credits to be received for AOG aircraft in the first quarter 2024, the Company estimates its operating margin would have been negative 11.5 percent to negative 10.5 percent.
The Company estimates total capital expenditures for the first quarter 2024 were approximately $30 million, primarily related to expenditures related to the building of Spirit's new headquarters campus in Dania Beach, Florida, and purchases of spare parts, including four spare engines, partially offset by net inflows of aircraft pre-delivery deposits.
The Company estimates it ended the first quarter 2024 with $1.2 billion of unrestricted cash and cash equivalents and short-term investment securities and $300 million of liquidity under the Company’s revolving credit facility (“Liquidity”). The Company estimates it will end the full year 2024 with approximately $1.4 billion of Liquidity.

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