Spirit Aviation Holdings has asked the bankruptcy court to approve a comprehensive $140 million settlement with International Aero Engines that would resolve disputes over problematic aircraft engines while providing the carrier with credits and access to replacement powerplants.
The motion, filed December 3 in the United States Bankruptcy Court for the Southern District of New York, addresses Spirit's second Chapter 11 bankruptcy in less than a year. The airline originally filed for bankruptcy protection on November 18, 2024, emerged on March 12, 2025, but filed again on August 29, 2025, under case number 25-11897 (SHL).
The Engine Crisis
The settlement addresses disputes over Pratt & Whitney GTF engines that power a significant portion of Spirit's fleet. In July 2023, Pratt & Whitney announced that these geared turbofan engines suffer from a rare condition in the powdered metal used to manufacture certain engine parts, which requires accelerated inspection of the GTF fleet. This required grounding of numerous aircraft, causing significant disruptions to Spirit's operations.
Prior to the August 29, 2025 bankruptcy filing, Spirit and the IAE Parties entered into an agreement that provided monthly credits through the end of 2025 for grounded aircraft. Continued negotiations resulted in the Restructuring Term Sheet that is the subject of this motion.
Financial Terms of the Settlement
The proposed settlement with IAE LLC and IAE AG would provide Spirit with up to $140 million in credits. IAE AG would issue an initial credit of $35 million no later than January 15, 2026, followed by up to $40 million in additional credits, and $20 million in credits during the period from January 1, 2027 through the last day of the last period of cover under certain fleet hour agreements. IAE LLC would provide $30 million no later than December 31, 2025, and $15 million no later than March 31, 2026.
The credits may be used by Spirit for the purchase of goods and services from IAE AG, IAE LLC, PW1100G-JM Engine Leasing LLC, and Pratt & Whitney. Each credit expires 36 months from the date it was earned. Credits are not subject to escalation or interest.
The settlement also addresses outstanding invoices. As of December 1, 2025, Spirit has outstanding invoices on its accounts with IAE AG and IAE LLC. Spirit agrees to settle these outstanding invoices by applying credits provided by IAE and making a cash payment by December 31, 2025. The parties reserve all rights regarding the pre-petition and post-petition allocation and priority of obligations relating to such outstanding invoices.
Access to Replacement Engines
The settlement grants Spirit access to up to 100 PW1100G-JM engines through short-term Green Time Lease agreements during the Support Term, which runs through September 30, 2027. These engines must be serviceable and have at least 200 cycles of life remaining at delivery. The engines were previously installed on Airbus A320neo family aircraft for which Spirit has rejected or otherwise terminated leases as part of the Chapter 11 Cases.
Spirit agrees to use commercially reasonable best efforts to enter into these leases, provided that Spirit is not required to enter into any GTE Leases that would have or reasonably be expected to have a material adverse impact on Spirit's financial condition or that would prejudice Spirit's position in its Chapter 11 Cases, or for reasons outside of Spirit's control.
The GTE Leases will provide up to 100 serviceable engines without the Debtors bearing maintenance costs. These engines will be used to operate the A320neo family aircraft, including as spare engines.
Fleet Retention Requirements
Spirit agrees to retain in its fleet as of the Chapter 11 Plan Date no less than 10 and up to 28 Neo Aircraft leased by Spirit with associated PW1100G-JM engines, with all other leased A320neo family aircraft and associated engines to be removed from Spirit's fleet by the Chapter 11 Plan Date.
Spirit also agrees to retain at least six PW1100G-JM spare engines owned by Spirit, with all other PW1100G-JM spare engines in Spirit's fleet as of the Petition Date to be removed by the Chapter 11 Plan Date.
Additionally, Spirit agrees to retain at least 78 A320ceo family aircraft leased to or owned by Spirit with 156 associated V2500 engines, with all other A320ceo family aircraft and associated V2500 engines in Spirit's fleet as of the Petition Date to be removed by the Chapter 11 Plan Date.
Spirit commits to maintaining a required ratio of spare V2500 engines to installed engines as measured across Spirit's A320ceo fleet.
Spirit agrees to purchase, subject to IAE LLC making such engines available for purchase, new PW1100G-JM spare engines with monthly deliveries beginning on a specified date. Spirit also commits to purchasing life limited parts directly from IAE AG for shop visits performed after January 1, 2026 under certain fleet hour agreements.
What Spirit Releases in Exchange
Spirit will provide a full and final release for the benefit of IAE LLC, IAE AG and their affiliates, effective as of the Effective Date, for certain claims that may accrue after January 1, 2025 up to and including the end of the Support Term as set forth in the settlement documents. The release covers RTX Corporation and Pratt & Whitney as a division thereof.
IAE LLC agrees that it will not require payment from Spirit of liquidated damages for Spirit's cancellation of 52 Cancelled Aircraft under the 2021 Neo Agreement and Spirit's cancellation of leases with AerCap for 36 Transfer Aircraft. IAE LLC will waive and release claims for liquidated damages for these cancelled aircraft and related claims against Spirit.
IAE LLC also agrees that it will not require payment from Spirit for Excess Removed Engines, will not reprice maintenance services performed on Excess Removed Engines, and will not adjust maintenance rates for engines that remain in the Fleet Management Program.
IAE AG agrees it will not require payment from Spirit for engines exiting certain fleet hour agreements in excess of specified thresholds, will not reprice maintenance services performed on such engines, and will not adjust rates for engines that remain under the fleet hour agreements.
Legal Arguments for Approval
Spirit argues the settlement should be approved because it is fair and equitable, reasonable, and in the best interests of the debtor's estate. The court should consider the Iridium factors established by the Second Circuit when evaluating the settlement.
Spirit states that success on the merits of Spirit's claims against IAE Parties would be speculative and uncertain. The value provided by the compromise outweighs the uncertainty of litigation. The settlement benefits creditors by providing $140 million in credits, preserving liquidity, and avoiding costly litigation. The settlement was negotiated at arm's length by parties with experienced counsel.
Spirit also seeks authorization under Section 363(b) of the Bankruptcy Code to enter into the GTE Agreements and Definitive Documents. Section 363(b)(1) empowers the Court to allow a debtor to use, sell, or lease, other than in the ordinary course of business, property of the estate.
The business judgment rule is satisfied when there is a business decision, disinterestedness, due care, good faith, and no abuse of discretion or waste of corporate assets. Entry into the GTE Agreements represents a sound exercise of business judgment because the GTE Leases will provide up to 100 serviceable engines without the Debtors bearing maintenance costs, these engines will be used to operate the A320neo family aircraft, the Definitive Documents will establish the contours of the Debtors' aircraft and engine portfolio, and the agreements will enable maintenance services at favorable rates.
Timeline and Next Steps
Judge Sean H. Lane has scheduled a hearing on the motion for December 16, 2025, at 11:00 a.m. Objections must be filed by December 11, 2025, at 5:00 p.m. The settlement requires Bankruptcy Court approval of the Term Sheet by December 30, 2025. The deadline for settlement of outstanding invoices is December 31, 2025. The Amendment Cut-Off Date to finalize agreements is January 31, 2026.
The Debtors note that notice of the Motion will be provided to the U.S. Trustee, the Committee of Unsecured Creditors, the Ad Hoc Committee of Senior Secured Noteholders, agents or trustees under the Debtors' secured notes indenture or revolving credit facility, the IAE Parties, and any other party entitled to notice under the Court's case management procedures order.
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