Lessons from the Spirit Airlines Liquidation. Is JetBlue Next?

Lessons from the Spirit Airlines Liquidation. Is JetBlue Next?
How Safe Are Your Air Miles? Your Funds? Your Bonds?
 
A jump in jet fuel prices is grounding an industry that suffers perennially from low credit ratings and low profit margins. Will JetBlue be the next airline to fall?

I included Boeing in the above chart because it is one of just 30 Dow Jones Industrial Average components and, like the airlines, has a lot of debt and leverage and a low credit rating.
 
High leverage is a systemic risk for shareholders and bondholders of airlines, as you can surmise from the low credit ratings. On June 8, 2026, S&P Global downgraded JetBlue from B- to CCC+, citing “elevated fuel costs and sustained high leverage.” Spirit Airlines declared Chapter 11 bankruptcy twice, in 2024 and 2025, before ceasing operations on May 2, 2026. (Email [email protected] if you’d like an updated Airline Stock Report Card.) With the exception of Alaska and Southwest, all the other airlines listed above have used the U.S. bankruptcy process and restructuring laws, while continuing to operate.
 
Many airlines reported net losses this year, including American, Alaska and JetBlue airlines. This puts pressure on already low credit ratings, as we saw last month with JetBlue. Credit downgrades spook both bond and stock investors. An investor race to the exit causes losses in the fair value of stocks and bonds, while severely reducing the market value of the company. Yes, if you hold the bond to term, and the company doesn’t declare bankruptcy before the repayment, you should be repaid in full. However, the credit downgrade means there is a question about whether the company is going to be able to meet its obligations. In the case of Spirit Airlines, the company went out of business. More often, however, airlines continue operating while they restructure their debt. That doesn’t mean that our stocks and bonds are safe. I’ll discuss the impact Chapter 11 and liquidation have on shareholders, bondholders and loyal customers in this blog.
 
Here are the topics I’ll cover.
 
Will JetBlue Restructure or Liquidate?
What Happens When Airlines Declare Bankruptcy, But Continue Operating?
What Happens When Airlines Go Out of Business?
Do Bond Funds Loan Your Money to Speculative Grade Airlines?
How Can We Ensure That We Do Not Own Stock in Airlines?
 
And here is more information on each point.
 
Will JetBlue Restructure or Liquidate?
A CCC+ credit rating means the borrower is vulnerable to nonpayment and is dependent upon more favorable conditions. JetBlue posted a net loss of -$319 million in the 1st quarter and -$247 million in the 2nd quarter. Bloomberg reported that JetBlue is hosting a private meeting by invitation only in August for holders of its 9.875% secured notes that are due in 2031. These bonds have seen their current value plummet to 84 cents on the dollar. JetBlue has lost -61% in its share price over the past five years.
 
If the war rages on and jet fuel costs remain high, that’s a problem for all airlines, but more so for the smaller ones, like JetBlue, which is worth just $2.13 billion. JetBlue had $1.656 billion in cash at the end of June 2026, with an additional $512 million in investment securities, and $250 million available for borrowing. The company’s total debt is $8.478 billion, with $755 million maturing in 2026.
 
As part of its commitment to the company’s turnaround, JetBlue will pass through as much of the higher fuel costs onto customers as it can. According to JetBlue CEO Joanna Geraghty in the 2Q 2026 earnings call, “We achieved nearly 50% fuel recapture in the 2nd quarter… Assuming demand strength persists, we continue to expect to achieve 100% fuel recapture by early 2027.” The C-Suite is focusing on the path forward and “expects to return to sustained operating profitability in 2027.”  However, JetBlue CFO Ursula Hurley ended her comments in the 1Q 2026 earnings call, saying, “To wrap up, the environment we are operating in is challenging and volatile.” The war isn’t over yet.
 
What Happens When Airlines Declare Bankruptcy, But Continue Operating?
Price shocks like the War in Iran or a pandemic can break the leverage game most airlines play. As I mentioned, sadly, airlines must restructure their debt rather routinely – particularly in recessions. Most continue operating. Margins are always tight. High oil/gas/jet fuel prices are highly correlated with recessions – though a contraction is not currently forecasted. (Economists are lousy at predicting recessions; policymakers rarely admit we’re in an economic pullback until at least half a year in.) The “on again, off again” War in Iran elevates the risk and lowers the risk appetite of investors.
 
When a company goes through a Chapter 11 debt restructuring, stockholders typically have their shares wiped out. The bondholders will lose part of their principal investment, forfeit their expected yield, and sometimes will be forced to take equity in the new stock rather than a cash payout of their principal. The airline mileage program is an asset, so most airlines will try to keep this customer loyalty program intact. There are risks, however.
 
What Happens When Airlines Go Out of Business?
As we saw with Spirit Airlines in May 2026 and WOW Air (March 2019), when a company ceases operations, travelers are left stranded. Travel savvy individuals often use the chargeback function on their credit card to get a refund for unused tickets rather than wait for frozen airline refunds to be distributed through a lengthy legal process, where their claim might be behind employees and secured bondholders. (When a service is not received and the chargeback is filed in a timely manner, the credit card companies are typically cooperative and swift.)
 
In a liquidation, the mileage program is typically wiped out completely because it is an unsecured claim. Again, if it’s a Chapter 11 restructuring and the company will continue operating, the miles should remain intact, although we might not be able to use them while the restructuring takes place.
 
Do Bond Funds Loan Your Money to Speculative Grade Airlines?
Investment grade bond funds limit their exposure to junk bonds – typically to 5-10% or less. We need to read the prospectus to know how much is allowed. However, to boost returns, many bond funds will include a lot of debt that is BBB – the lowest rung of investment grade. Some include a high percentage of agency mortgage-backed securities and treasuries. We’ve seen some trouble in the long-term treasury bond/note market of late. Fannie Mae and Freddie Mac, those government-sponsored agencies that are backing the MBS market, had to be rescued in 2008. Common and preferred shareholders were wiped out.
 
Many bond funds have lost money over the past few years. FYI: About half of U.S. based debt (outstanding bonds)  have a credit rating at the lowest rung of investment grade. For this reason, our sample pie charts do not include bond funds. In fact, we prefer an elite group of corporate bonds for the safe allocation of our wealth plan. We also observe other key fixed income rules. (Click on the blue-highlighted words to learn more.) Our sample “safe” suggestions have been earning a market yield without paper losses since our business started in 1999. Earning income without losing principal is tricky in today’s Debt World. It’s not difficult – just tricky. If you’d like to learn our strategies, join us for our upcoming Bonds & Fixed Income Masterclass. Register by July 31, 2026, to receive the best price. Prerequisite: The Financial Freedom Retreat.
 
How Can We Ensure That We Do Not Own Stock in Airlines?
If we want to limit our exposure to airlines, we must be picky about our dividend and value funds. These stocks rarely show up in our growth funds. In our sample pie charts, we are currently using select country replacements instead of U.S. based value and dividend funds, as the debt and leverage in many U.S. companies, including airlines, are elevated, while many prices are still very expensive. In the iShares Australia ETF, we are receiving higher credit quality and a higher yield than the comparable U.S.-based dividend fund. The iShares Peru ETF is up 149% over the last three years, while also earning a 2% yield.
 
Some airlines will be included in a broad-based fund, but it would only be a very small percentage. However, broad market funds do not meet our diversification criteria. We prefer separating our growth, value, size and hots in order to see and capture gains when we do our 1-3 times a year rebalancing. Rebalancing and keeping your money are very important rules of investing, particularly in today’s volatile world. (The S&P500 dropped -19.44% in 2022, while long-term government bonds lost -26%.) When we lump everything together into a fund that holds everything and the kitchen sink, it’s impossible to underweight the losers, lean into performance and ensure that our safe allotment (equal to our age) is earning income without losses (paper or otherwise).
 
Learn more in my Hot Countries blog, at our Financial Freedom Retreat and in my private coaching. Email [email protected] or call 310-430-2397 to learn the life math that we all should have received in high school and start being the boss of your money now.
 
 
Bottom Line
Larger, legacy airlines are more likely to go through a Chapter 11 bankruptcy, which might keep our airline miles intact, while smaller airlines might be at risk of ceasing operations, where the miles get wiped out. Beyond our mileage plan, it’s a very good idea to limit our investment exposure to these risky assets. That means that we want to know what we own and ensure that we have a safe, protected, hot and diversified wealth plan, rather than relying on target-date retirement funds (typically exposed to bond and value funds, while some are even losing money), broad-based index funds, annuities, or having blind faith that someone else is protecting our wealth and future for us.
 
You can learn and implement our time-proven strategies at our Financial Freedom Retreat. You can receive a complete analysis and unbiased 2nd opinion of your current plan through my private coaching. You can read about these strategies in my bestselling books. Email [email protected] or call 310-430-2397 to learn more now.

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Natalie Wynne Pace is an Advocate for Sustainability Financial Literacy & Women's Empowerment. Natalie is the bestselling author of The ABCs of Money (6th edition) and The Power of 8 Billion: It's Up to Us, and is the co-creator of the Earth Gratitude Project. She has been ranked as a No. 1 stock picker, above over 835 A-list pundits, by an independent tracking agency (TipsTraders). Her book The ABCs of Money remained at or near the #1 Investing Basics e-book on Amazon for over 3 years (in its vertical), with over 120,000 downloads and a mean 5-star ranking. The 6th edition of The ABCs of Money and the 2nd edition of The ABCs of Money for College are the most recent releases of these books. Follow her on Instagram. 
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Important Disclaimers
Please note: Natalie Pace does not act or operate like a broker. She reports on financial news, and is one of the most trusted sources of financial literacy, education and forensic analysis in the world. Natalie Pace educates and informs individual investors to give investors a competitive edge in their personal decision-making. Any publicly-traded companies, funds or projects mentioned by Natalie Pace are not intended to be buy or sell recommendations.

ALWAYS do your research and consult an experienced, reputable financial professional before buying or selling any security, and consider your long-term goals and strategies. Investors should NOT be all in on any asset class or individual stocks. Your retirement plan should reflect an age-appropriate, diversified wealth plan, which has been designed strategically, with the assistance of financial professionals who are familiar with your goals, risk tolerance, tax needs and more. The "trading" portion of your portfolio should be a very small part of your investment strategy, and the amount of money you invest into individual companies should never be greater than your experience, wisdom, knowledge, patience and diversified strategy.  
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Information has been obtained from sources believed to be reliable. However, NataliePace.com does not warrant its completeness or accuracy. Opinions constitute our judgment as of the date of this publication and are subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument.