No-frills carrier Spirit Airlines is bankrupt. Now President Donald Trump is mulling a federal takeover of the company. Can the U.S. government make the planes run on time?
Spirit Airlines employs 14,000 people and “maybe the federal government should help that one out,” Trump said to reporters last week, per Reuters. But there is hesitation in Trump’s cabinet and among the president’s free-market fellow Republicans. There has been “a lot of money thrown at Spirit, and they haven’t found their way into profitability,” Transportation Secretary Sean Duffy said to the outlet. The federal government “can’t make dumb investments.”
A federal takeover would make Spirit the “Amtrak of the skies,” Cato Institute’s Tad DeHaven said to Axios. The possible deal would give the airline $500 million in cash in exchange for a 90% government stake in the business. That would “mark a renewal of a bailout strategy” the government pursued following the 2008 financial crisis, in which the feds owned pieces of “too big to fail” companies such as General Motors, Chrysler and several banks, said the outlet.
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‘Market discipline’ versus ‘Moral hazard’
The federal government “has to save Spirit Airlines,” Kyle Stewart said at Live and Let’s Fly. The Justice Department sued to block a merger between Spirit and JetBlue in 2022, arguing that the “Spirit effect” forced other airlines to lower fares to be competitive. And it is true that Spirit “made air travel possible for people who otherwise could not afford it.” But that created a moral obligation for the government. The government kept Spirit from selling itself, which means it “cannot shrug when the same airline later circles the drain.”
The Justice Department made the “wrong decision” blocking the 2022 merger, Ben Schlappig said at One Mile at a Time. The government’s intervention “failed to take into account that Spirit no longer had a viable business model.” But the “bad merger idea” probably would have failed, given that JetBlue is also currently stumbling. Beyond that, Spirit’s current rate of spending means it would likely burn through $500 million “in a matter of months.” That would leave the government “owning an airline that loses a lot of money. Then what?”
“There’s no economic justification for the government to save Spirit Airlines,” The Wall Street Journal said in an editorial. Letting the company fail “would be a useful lesson in market discipline,” but a bailout “would fuel moral hazard” that would invite rivals like JetBlue to seek government assistance as well.
‘Fundamentally flawed’
An infusion of government cash might not save an airline that has “been on life support for years,” said CNN. Spirit and other discount carriers “continued to lose money” after emerging from the pandemic. The company’s business “was fundamentally flawed,” United CEO Scott Kirby said to the outlet.
Spirit could become the “new face of state capitalism,” Jessica Karl said at Bloomberg. But the company’s problems have been apparent for years. “A check for $500 million from the Trump administration won’t magically change that.”
