Roger Henriquez

@RogerUSD

Profesional de inversiones confiable y orientado a detalles que te mantendrá informado de las condiciones de mercado y tu portafolio

Ann Arbor, MI

Joined February 2022

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137 Followers

66 Posts

RogerUSD retweeted

Robert Sterling

@RobertMSterling

about 2 months ago

[LONG RANT] “Spirit would have just made JetBlue go bankrupt anyway! You can’t blame Biden or Warren!” Do you guys know what bankruptcy is? I’m not trying to be rude, but do you understand that not all bankruptcy processes are the same (or even comparable), and that there are MAJOR differences between Chapter 11 and Chapter 7? Let’s set aside the particulars of JetBlue’s financial position and assume these people are right. Let’s grant them that—for purposes of argument—acquiring and integrating Spirit would have been the death knell for JetBlue’s lackluster balance sheet. (This is far from guaranteed, and I promise you that none of the people on social media making these claims have analyzed the company’s financial statements, let alone built a forecast for the business or looked at its solvency ratios.) JetBlue, under the worst case scenario, would be suffering from a balance issue, not a fatal structural issue with the company’s business model itself. In other words, it is not the case that JetBlue is a fundamentally “bad business” that shouldn’t exist. It just shouldn’t exist with the level of debt that it currently maintains (~$9.5B of debt and lease obligations, compared to EBITDA of $490M in 2024 and $284M in 2025). Finance bros would say it has “viability as a going concern,” just not with the level of liabilities currently on its balance sheet. When a company has a business model that fundamentally works—when it is viable as a going concern—but it is not able to service its liabilities, the company doesn’t just fold up and shut down. It generally goes through a restructuring process, either directly with creditors (you’ll hear the term “liability management exercise” from smart guys like my absolute bro @HighyieldHarry a lot) or via the court system. When the process is pursued via the court system, it is a Chapter 11 bankruptcy. This is what Spirit attempted—twice—after the Biden administration sued to block its sale to JetBlue. In a Chapter 11 process, the company generally reorganizes its operations (burdensome contracts are renegotiated, new executives are sometimes brought in, etc.) and restructures its balance sheet (debt terms are modified, and owners of common equity, at the bottom of the capital stack, usually take substantive haircuts, if they’re not wiped out entirely). But here’s the most important part of Chapter 11—and I’m going to capitalize this for emphasis: THE BUSINESS DOES NOT STOP OPERATING. Not only does it not stop operating, its stakeholders—vendors and suppliers, for example—often aren’t allowed to stop working with them. Business goes on, the lights stay on, employees get paid (assuming temporary financing is lined up), and customers continue to be served. For the company, the world keeps turning, even if its equity owners know their days are limited. Under the worst case scenario, this is what would have happened—what still might happen—to a post-Spirit-acquisition JetBlue. Its planes would have kept flying, its employees would have continued receiving paychecks twice a month, and most passengers would not have even known any difference. Ultimately, the company exits the Chapter 11 process with a healthier balance sheet, better prospects for its future, and a new lease on life. Countless companies—including nearly every major US airline, as well as General Motors and Chrysler—have gone through this process and gone on to operate as successful commercial enterprises. I have zero doubt that, in this hypothetical scenario, JetBlue would end up being one of them. Now, let’s talk about what just happened with Spirit. Spirit isn’t going through Chapter 11 right now. It tried that twice already, and both times were insufficient. Spirit is therefore now filing for Chapter 7 bankruptcy. Chapter 7 is liquidation. It is, for all intents and purposes, the end. Operations cease. Passengers get stranded at distant airports. Employees don’t get their paychecks, let alone creditors their debt serviced. If Chapter 11 is surgery and physical therapy for a business, Chapter 7 is capital punishment. It is corporate death. In a Chapter 7 process, the company’s assets are sold off—generally in piecemeal fashion—to the highest bidders, proceeds from which are used to satisfy creditors. In the case of Spirit, this will involve its fleet of planes (those that are owned, not leased) being sold off to other carriers, as well as ground equipment. Gate slots and leases—which are extremely valuable at space-constrained airports—will also be sold off to other airlines. Spirit’s customer file—the names, email addresses, and contact information of its customers—will probably get sold off to whichever scammy direct marketing firm is willing to pay the most. Even the Spirit brand itself will also be sold (Spirit Halloween, you guys have the opportunity to do the funniest thing ever.) Spirit’s creditors will be partially repaid. They will have a bad quarter, perhaps even a bad year. But they will, by and large, be fine. You know who won’t be fine? Spirit’s 15,000+ employees. They are—to use the proper legal and financial term—up shit creek. The company’s pilots will get scooped up by other airlines, though they and their families may have to relocate. Flight attendants may or may not get jobs elsewhere, as will its ground staff and its corporate employees (accountants, IT staff, etc.). But it’s not exactly the best white-collar job market right now. This is why it’s so infuriating to see people say Spirit would have dragged JetBlue into bankruptcy regardless, and that we therefore should not hold cynical, incapable politicians accountable. A JetBlue bankruptcy—which, again, would not have been a sure bet by any stretch of the imagination—would have been a Chapter 11 reorganization. Possibly even an out-of-court restructuring among the company and its creditors. Spirit’s bankruptcy, on the other hand, is the end. The company is dead. The two aren’t comparable. And this is a really shitty day for a lot of decent people that didn’t deserve any of this,

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Roger Henriquez

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