Last week, I argued that a federal rescue of Spirit Airlines would be a disturbing escalation from government mistake to government ownership—a concern that’s quickly proving justified.
The Trump administration hasn’t even finalized its reported rescue of Spirit, and the bailout line is already forming. According to the Wall Street Journal, a group of budget airlines, including Frontier and Avelo, is seeking $2.5 billion in federal assistance in exchange for warrants that could later convert into equity stakes.
The request is tied to higher jet fuel costs driven by the administration’s decision to attack Iran in late February without giving sufficient regard to the potential economic fallout. With one struggling budget airline set to receive a bailout, it’s unsurprising that competitors—facing the same cost pressures and a potential government-backed rival—would seek a similar deal from an administration that’s growing desperate to put out the fires it lit.
This is how a one-off intervention leads to broader government intervention.
Meanwhile, the terms of a possible Spirit deal remain alarming. CBS News reported Friday evening that the administration is considering using Title III of the Defense Production Act (DPA) as part of the airline’s restructuring. The package reportedly includes $500 million in financing in exchange for the federal government receiving warrants equal to 90 percent of Spirit’s equity. The government would also become the senior creditor in bankruptcy, potentially pushing private claimants down the line and further eroding the expectation that corporate failures will be handled through neutral legal rules rather than political intervention.
The DPA angle just adds to the absurdity.
The administration isn’t interested in solving a defense production problem; rather, it’s simply considering invoking “national defense” to dress up an airline bailout. As travel industry analyst Gary Leff explains, the DPA is not a general-purpose rescue tool for distressed companies—it’s aimed at reducing shortfalls in industrial resources, critical technologies, or materials essential to national defense. The statute also requires findings that private financing is unavailable on reasonable terms, that US industry cannot provide the needed capacity without the loan, that the loan is the most practical and cost-effective way to meet the need, and that there is reasonable assurance of repayment.
That’s an obviously poor fit for a failing budget airline. Moreover, the administration’s national defense rationale appears to be a cooked-up argument that Spirit’s excess capacity could be used for troop transportation, cargo, or emergency mobility. But if the Pentagon needs civilian air support, it can use the Civil Reserve Air Fleet, a voluntary program authorized under the DPA to augment military capabilities during a national defense crisis. Interestingly, the current list includes almost 30 carriers—but Spirit isn’t one of them.
Transportation Secretary Sean Duffy even seems to understand the problem. Last Tuesday, when news of a possible Spirit bailout broke, Duffy told Reuters, “What we don’t want to do is put good money after bad.” He also asked whether a Spirit bailout would merely “forestall the inevitable” and posed the obvious question: “If no one else wants to buy them, why would we buy them?”
That’s exactly right. If private investors, competitors, creditors, and potential buyers don’t see enough value in Spirit to put their own money at risk, taxpayers should not be forced into the role of rescue financier. And if the administration rescues Spirit and others follow, an additional concern Duffy expressed will have been prescient: “By the way if you do do Spirit, who comes next? Who is the third?”
A Spirit bailout was already a bad idea when it involved one airline. The latest reports show why it could become even worse: Anytime Washington suggests that government money is available, the line begins to form.