Spirit Airlines 2012 Annual Report Download - page 18

A failure to pay our operating lease and other fixed cost obligations or a breach of our contractual obligations could result in a variety of adverse consequences,
including the exercise of remedies by our creditors and lessors. In such a situation, it is unlikely that we would be able to cure our breach, fulfill our obligations, make
required lease payments or otherwise cover our fixed costs, which would have a material adverse effect on our business, results of operations and financial condition.
We are highly dependent upon our cash balances and operating cash flows.
As of December 31, 2012 , we had access to lines of credit from two counterparties to our jet fuel derivatives and our purchase credit card issuer aggregating $36.6
million . These credit facilities are not adequate to finance our operations, and we will continue to be dependent on our operating cash flows and cash balances to fund our
operations and to make scheduled payments on our aircraft related fixed obligations. Although our credit card processors currently do not have a right to hold back credit
card receipts to cover repayment to customers, if we fail to maintain certain liquidity and other financial covenants, their rights to holdback would be reinstated, which
would result in a reduction of unrestricted cash that could be material. In addition, we are required by some of our aircraft lessors to fund reserves in cash in advance for
scheduled maintenance, and a portion of our cash is therefore unavailable until after we have completed the scheduled maintenance in accordance with the terms of the
operating leases. Based on the age of our fleet and our growth strategy, these maintenance deposits will increase over the next few years before we receive any significant
reimbursement for completed maintenance. If we fail to generate sufficient funds from operations to meet our operating cash requirements or do not obtain a line of credit,
other borrowing facility or equity financing, we could default on our operating lease and fixed obligations. Our inability to meet our obligations as they become due would
have a material adverse effect on our business, results of operations, and financial condition.
A deterioration in worldwide economic conditions may adversely affect our business, operating results, financial condition, liquidity and ability to obtain financing
or access capital markets.
The general worldwide economy has experienced a downturn due to the effects of the European debt crisis, unfavorable U.S. economic conditions and slowing growth
in certain Asian economies, including general credit market crises, collateral effects on the finance and banking industries, concerns about inflation, slower economic
activity, decreased consumer confidence, reduced corporate profits and capital spending, adverse business conditions and liquidity concerns. The airline industry is
particularly sensitive to changes in economic conditions, which affect customer travel patterns and related revenues. A weak economy could reduce our bookings, and a
reduction in discretionary spending could also decrease amounts our customers are willing to pay. Unfavorable economic conditions can also impact the ability of airlines to
raise fares to help offset increased fuel, labor and other costs. We cannot accurately predict the effect or duration of any economic slowdown or the timing or strength of a
subsequent economic recovery.
In addition, we have significant obligations for aircraft and spare engines that we have ordered from Airbus and IAE (or any other engine manufacturer for future
deliveries) over the next nine years, and we will need to finance these purchases. We may not have sufficient liquidity or creditworthiness to fund the purchase of aircraft
and engines, including payment of PDPs, or for other working capital. Factors that affect our ability to raise financing or access the capital markets include market
conditions in the airline industry, economic conditions, the perceived residual value of aircraft and related assets, the level and volatility of our earnings, our relative
competitive position in the markets in which we operate, our ability to retain key personnel, our operating cash flows, and legal and regulatory developments. Regardless of
our creditworthiness, at times the market for aircraft purchase or lease financing has been very constrained due to such factors as the general state of the capital markets and
the financial position of the major providers of commercial aircraft financing.
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• limit our ability to make required pre-
delivery deposit payment, or PDPs, including those payable to Airbus or IAE for our aircraft and spare engines on order;
•
limit our ability to obtain additional financing to support our expansion plans and for working capital and other purposes on acceptable terms or at all;
• make it more difficult for us to pay our other obligations as they become due during adverse general economic and market industry conditions because any related
decrease in revenues could cause us to not have sufficient cash flows from operations to make our scheduled payments;
• reduce our flexibility in planning for, or reacting to, changes in our business and the airline industry and, consequently, place us at a competitive disadvantage to
our competitors with less fixed payment obligations; and
• cause us to lose access to one or more aircraft and forfeit our rent deposits if we are unable to make our required aircraft lease rental payments and our lessors
exercise their remedies under the lease agreement including cross default provisions in certain of our leases.