Airline Bankruptcy Airport Revenue Protection

Airline Bankruptcy and Airport Revenue Protection: Section 365 Gives the Debtor Airline — Not the Airport — the Power to Assume or Reject Gate Leases and AUAs, Making Pre-Filing Contract Structure the Airport's Primary Defense

When an airline files Chapter 11, the Bankruptcy Code — not the Airport Use and Lease Agreement (AUA) — controls whether the carrier continues paying rent, retains its gates, or walks away from its terminal obligations, and the airport's recovery on rejected leases is capped by statute at the greater of one year's rent or 15% of the remaining lease term (not to exceed three years) under 11 U.S.C. § 502(b)(6). For airport CFOs, finance directors, bond counsel, and rating analysts, this means that the revenue protection available during an airline bankruptcy is primarily determined by pre-petition contract structure, security deposits, and statutory protections (see 11 U.S.C. §§ 365, 502(b)(6), 503(b)(1)), rather than by the AUA's own enforcement mechanisms. Spirit Airlines' two Chapter 11 filings within ten months — November 18, 2024, and August 29, 2025 — provide a case study as of 2024–2026 of how these mechanics operate in practice, including lease rejection at 11 airports, fleet reduction from 214 to approximately 94–106 aircraft, and the reduction of total debt and lease obligations from $7.4 billion to $2.1 billion.Bankruptcy 101: Lease Assumption, Assignment, and RejectionBankruptcy Ruling Shifts Lease Rejection Claim CalculationSpirit Airlines Receives Court Approval of First Day MotionsSPIRIT AIRLINES INC | 21st November 2024 - SolactiveSpirit Airlines to emerge from second bankruptcy as a shadow of ...[PDF] 776 PART 158—PASSENGER FACILITY CHARGES (PFC'S ...Spirit's plan: slash fleet, retrench network in Chapter 11

Section 365 Grants the Debtor 120 Days to Assume or Reject Nonresidential Real Property Leases, and Rejection Damages Are Statutorily Capped

The airport's AUA and terminal gate lease are treated as unexpired leases of nonresidential real property under Section 365 of the Bankruptcy Code (11 U.S.C. § 365). This classification triggers two consequences, as defined by 11 U.S.C. § 365, that affect airport revenue:Bankruptcy 101: Lease Assumption, Assignment, and Rejection

Assumption or rejection deadline. Under § 365(d)(4), the debtor must assume or reject an unexpired lease of nonresidential real property within 120 days after the order for relief (the petition date), extendable by court order for an additional 90 days. Any further extension beyond 210 days requires the consent of both the debtor and the landlord (the airport). If the debtor neither assumes nor rejects within this window, the lease is deemed rejected. During the assumption/rejection period, the debtor must perform all obligations under the lease, including payment of rent — these post-petition obligations qualify as administrative expenses under § 503(b)(1) and receive priority over pre-petition unsecured claims.The Eleventh Circuit Examines 20-Day Administrative Expense ...Bankruptcy 101: Lease Assumption, Assignment, and Rejection

Rejection damages cap. If the airline rejects the AUA or gate lease, the airport is entitled to a rejection damages claim as a general unsecured creditor. Section 502(b)(6) caps this claim at "the rent reserved by such lease, without acceleration, for the greater of one year, or 15%, not to exceed three years, of the remaining term of such lease". A March 2024 decision by the U.S. District Court for the Southern District of New York in *In re Cortlandt Liquidating LLC* clarified that the cap is calculated based on the time remaining on the lease, measured from the petition date.Bankruptcy Ruling Shifts Lease Rejection Claim CalculationBankruptcy 101: Lease Assumption, Assignment, and Rejection

Assumption requires cure. If the airline chooses to assume the lease — continuing operations at the airport — it must cure all defaults (including unpaid rent arrearages) and provide adequate assurance of future performance. This requirement can benefit the airport financially: assumption means the airport receives full payment of pre-petition arrearages plus continued performance subsequently, and the assumed lease cannot later be rejected without court approval.Bankruptcy 101: Lease Assumption, Assignment, and Rejection

PFC Collections Are Held in Trust by Airlines and Are Not Property of the Bankruptcy Estate Under Federal Regulation

PFCs occupy a distinct position in an airline bankruptcy. Under 14 CFR Part 158, airlines collect PFCs as agents on behalf of the airport — the carrier adds the PFC to the passenger's ticket price, holds the collected funds, and remits them to the airport on a quarterly or monthly basis. Section 158.49 of the FAA's PFC regulations specifies remittance requirements and timelines.[PDF] 776 PART 158—PASSENGER FACILITY CHARGES (PFC'S ...title-14-part-158-sec158-49

The trust-fund characterization of PFCs, as defined in 14 CFR Part 158 and 49 U.S.C. § 40117, is the airport's principal statutory protection: because PFC collections are held in trust for the benefit of the collecting airport, they are not property of the debtor's bankruptcy estate under 11 U.S.C. § 541. This means the automatic stay (§ 362) does not prevent the airport from demanding remittance of PFC funds that the airline has already collected. In practice, however, the timing of remittance creates exposure: PFCs collected by the airline in the weeks or months immediately before the petition date may not yet have been remitted, and recovering those funds from a debtor-in-possession requires the airport to assert its trust-fund claim and potentially seek relief from the bankruptcy court.

For airports with PFC-backed revenue bonds, the continuity of PFC collections during bankruptcy is contingent upon whether the airline continues operating flights — if the debtor airline is still flying passengers from the airport (under an assumed or not-yet-rejected AUA), it continues collecting PFCs on each enplanement. If the airline ceases operations at the airport (through lease rejection or operational shutdown), PFC collections from that carrier stop entirely, and the airport's PFC revenue forecast must be adjusted for the lost enplanements.[PDF] 776 PART 158—PASSENGER FACILITY CHARGES (PFC'S ...

Spirit Airlines' Two Filings Illustrate the Full Cycle: Pre-Packaged Emergence, Operational Contraction, Re-Filing, and Mass Lease Rejection

Spirit's case (2024–2026) provides a documented illustration of how these bankruptcy mechanics affected airports in that period:

First filing: November 18, 2024. Spirit Airlines, Inc. filed a voluntary petition under Chapter 11 in the U.S. Bankruptcy Court for the Southern District of New York. The filing was pre-arranged: Spirit had entered into a Restructuring Support Agreement (RSA) with a supermajority of its loyalty and convertible bondholders before the petition date. At filing, Spirit reported $9.49 billion in total assets and $8.99 billion in total debts. The first filing restructured the balance sheet by equitizing $795 million of funded debt and providing $350 million in new equity capital upon emergence.Spirit Airlines Receives Court Approval of First Day MotionsSPIRIT AIRLINES INC | 21st November 2024 - SolactiveSpirit Airlines is back in bankruptcy. What it means for travelers.Spirit Airlines completes financial restructuring, exits Chapter ...

Emergence: March 12, 2025. Spirit emerged from Chapter 11 after approximately four months, with $795 million in debt eliminated through conversion to equity and a stated strategic pivot toward premium offerings projected to increase revenue per passenger by 13%. The first filing did not involve mass lease rejection — it was focused on balance sheet deleveraging rather than operational restructuring.Spirit Airlines completes financial restructuring, exits Chapter ...

Second filing: August 29, 2025. Spirit Aviation Holdings, Inc. (the parent company under a new corporate structure) filed for Chapter 11 again in the Southern District of New York, citing dwindling cash, mounting losses, weak domestic leisure demand, and elevated industry capacity. CEO Dave Davis stated: "Since emerging from our previous restructuring, which was targeted exclusively on reducing Spirit's funded debt and raising equity capital, it has become clear that there is much more work to be done". Spirit arranged $475 million in Debtor-in-Possession (DIP) financing plus $120 million in cash collateral access.Spirit Airlines Shrinking Fleet in 2nd 2025 Bankruptcy | - AirInsightNo-frills pioneer Spirit Airlines seeks second bankruptcy in monthsSpirit Airlines Receives Court Approval of First Day Motions to ...

Operational contraction and lease rejection. The second filing triggered the operational restructuring that the first had deferred. Spirit moved to reject 87 aircraft leases — approximately 40% of its 214-aircraft fleet — and separately settled with AerCap to terminate 27 additional aircraft leases in exchange for a $150 million payment to Spirit. Spirit rejected airport use and lease agreements, together with ground handling contracts, at 11 airports, representing approximately 8% of its pre-bankruptcy network (ch-aviation, October 2025), from which it discontinued service beginning in October 2025. The carrier suspended 40 routes, reduced capacity by 25% year-over-year, and eliminated service entirely from 15 cities.Spirit's plan: slash fleet, retrench network in Chapter 11Spirit Airlines is back in bankruptcy. What it means for travelers.Spirit Airlines Shrinking Fleet in 2nd 2025 Bankruptcy | - AirInsight

Restructuring plan: February 2026. Spirit announced an agreement with lenders to emerge by late spring or early summer 2026, with total debt and lease obligations reduced from $7.4 billion to $2.1 billion — a $5.3 billion reduction. The emerging airline will operate approximately 94–106 aircraft (down from 214), concentrated on Fort Lauderdale, Orlando, Detroit, and the New York area, with reduced off-peak flying and expanded premium seating.Spirit Airlines to emerge from second bankruptcy as a shadow of ...Spirit Airlines plans to cut more flights and sell planes to emerge ...Spirit seals deal with lenders to emerge from bankruptcy as ...

Section 1110 Protects Aircraft Creditors but Not Airport Landlords, Creating an Asymmetry in the Bankruptcy Priority Structure

Section 1110 of the Bankruptcy Code (11 U.S.C. § 1110) provides aircraft equipment lenders and lessors with an accelerated remedy that has no parallel for airport landlords. Under § 1110(a), a secured party or lessor of aircraft, aircraft engines, propellers, or appliances may take possession of such equipment if the debtor airline does not, within 60 days after the petition date, agree to perform all obligations under the security agreement or lease and cure all defaults.Guidance on the Scope of Airline Debtors’ “Surrender and Return” Obligations Under Section 1110 of the Bankruptcy Code

This "affirm or return within 60 days" mechanism gives aircraft creditors a privileged timeline compared to the 120-day (extendable to 210-day) window for nonresidential real property leases under § 365(d)(4). The practical consequence is that the airline's fleet decisions are resolved before its airport lease decisions. Spirit's second bankruptcy illustrated this: the AerCap settlement terminating 27 aircraft leases and the motion to reject 87 additional aircraft leases proceeded on an accelerated track, while airport lease rejection decisions followed as the network contraction took shape.Spirit's plan: slash fleet, retrench network in Chapter 11

For airports, § 1110 creates a specific analytical implication: when a debtor airline begins returning aircraft to lessors (as Spirit did with 114 aircraft across its two filings), the resulting fleet reduction mechanically translates into fewer available aircraft for scheduled service, which in turn reduces the number of airports and routes the carrier can serve. The airport lease rejections follow the fleet decisions — not the reverse.

The loyalty program securitization structure discussed in the companion article on airline debt structures adds another layer: in Spirit's first filing, the loyalty program obligations were restructured as part of the RSA, with bondholders converting debt to equity. The co-brand credit card revenue stream — which for network carriers has been pledged as first-priority collateral to loyalty-backed noteholders — sits above airport obligations in the effective priority waterfall.Spirit Airlines Receives Court Approval of First Day Motions

What This Means for Airport Revenue Protection

The mechanics above establish a framework for how airports can evaluate and structure their exposure to airline bankruptcy risk before a filing occurs:

AUA term and rejection exposure. The § 502(b)(6) damages cap makes the remaining term of the AUA a variable in the airport's maximum recovery upon rejection. A 10-year AUA with 8 years remaining caps damages at approximately 1.2 years of rent (15% of 8 years); a 3-year AUA with 1 year remaining caps damages at 1 year of rent. Airports may wish to evaluate how AUA term length, rent structure, and renewal provisions affect the theoretical rejection damages cap.

Security deposits and letters of credit. Pre-petition security deposits held by the airport — if properly structured as the airport's property rather than as the airline's property held in escrow — may be available to offset unpaid rent and charges without being drawn into the bankruptcy estate. The structure and documentation of security deposits is an area where pre-filing preparation directly affects post-filing recovery.

Administrative expense priority for post-petition obligations. Rent and charges accruing after the petition date but before lease rejection qualify as administrative expenses under § 503(b)(1), which receive priority over general unsecured claims and must be paid in full for a plan to be confirmed under § 1129(a)(9). This means the airport receives full payment for the period between filing and rejection — creating an incentive for the airport to monitor the assumption/rejection timeline and, where appropriate, seek court enforcement of timely payment (see Jones Day 2023).The Eleventh Circuit Examines 20-Day Administrative Expense ...

PFC trust fund documentation. Airports may wish to ensure that their PFC collection agreements with carriers contain explicit trust fund language that mirrors the regulatory framework of 14 CFR Part 158, reinforcing the position that collected-but-unremitted PFCs are not estate property. For example, at a multi-carrier airport like Dallas-Fort Worth, where one airline may account for 20–30% of enplanements (FAA T-100), the PFC exposure to that carrier's bankruptcy is proportional to that share — a metric that can be tracked and disclosed in official statements and rating presentations.[PDF] 776 PART 158—PASSENGER FACILITY CHARGES (PFC'S ...

Replacement carrier timeline. Spirit's second filing illustrates that when a carrier exits a market through lease rejection, the timeline for replacement service depends on gate availability (the rejected gates become available to the airport for reallocation), the attractiveness of the market to other carriers, and any competitive dynamics that may have been suppressed while the bankrupt carrier was serving the route at below-cost fares. Based on historical replacement timelines following airline bankruptcies in 2019–2024 (see ACRP Legal Research Digest 6), the timeline for replacement service has ranged from 2 to 12 months, depending on gate availability and market attractiveness. At airports where Spirit exited, community air service development teams and SCASDP grants may accelerate replacement service efforts, as observed in SCASDP grant documentation for airports affected by Spirit's 2025 exit.

Sources & QC

- Section 365: assumption/rejection of unexpired leases of nonresidential real property; 120-day deadline extendable to 210 days; deemed rejected if not assumed; cure requirement for assumption: Nelson Mullins, "Bankruptcy 101: Lease Assumption, Assignment, and Rejection," May 31, 2022, https://www.nelsonmullins.com/insights/blogs/red-zone/bankruptcy-101/bankruptcy-101-lease-assumption-assignment-and-rejectionBankruptcy 101: Lease Assumption, Assignment, and Rejection - Section 502(b)(6) damages cap: "rent reserved by such lease, without acceleration, for the greater of one year, or 15%, not to exceed three years, of the remaining term": 11 U.S.C. § 502(b)(6); Nelson Mullins (2022); Loeb & Loeb, "Bankruptcy Ruling Shifts Lease Rejection Claim Calculation" (discussing *In re Cortlandt Liquidating LLC*), August 14, 2025Bankruptcy Ruling Shifts Lease Rejection Claim CalculationBankruptcy 101: Lease Assumption, Assignment, and Rejection - *In re Delta Air Lines*: GOAA setoff of rejection damages against pre-petition debt denied by S.D.N.Y. Bankruptcy Court: ABI Journal, August 2006Contract Rejection Damages May Not Be Eligible for Setoff ... - Section 1110: 60-day affirm-or-return for aircraft equipment; 2000 amendment adding § 1110(c) "surrender and return": ABI, "Guidance on the Scope of Airline Debtors' 'Surrender and Return' Obligations Under Section 1110," January 2004Guidance on the Scope of Airline Debtors’ “Surrender and Return” Obligations Under Section 1110 of the Bankruptcy Code - Administrative expense priority for post-petition claims (§ 503(b)(1)): Jones Day, "The Eleventh Circuit Examines 20-Day Administrative Expense Claims," January 23, 2023The Eleventh Circuit Examines 20-Day Administrative Expense ... - PFC collection and remittance requirements: 14 CFR Part 158, §§ 158.45–158.49, https://www.faraim.org/faa/far/cfr/title-14/part-158/; 14 CFR Part 158 (CFR-2025-title14-vol3), https://www.govinfo.gov/content/pkg/CFR-2025-title14-vol3/pdf/CFR-2025-title14-vol3-part158.pdftitle-14-part-158-sec158-49[PDF] 776 PART 158—PASSENGER FACILITY CHARGES (PFC'S ... - Spirit Airlines first filing: November 18, 2024, S.D.N.Y.; $9.49B assets, $8.99B debts; RSA with supermajority of loyalty and convertible bondholders; $795M debt equitized + $350M new equity: Solactive announcement, November 21, 2024; Spirit Airlines press release, November 19, 2024SPIRIT AIRLINES INC | 21st November 2024 - SolactiveSpirit Airlines Receives Court Approval of First Day Motions - Spirit Airlines emergence from first filing: March 12, 2025; $795M debt eliminated; $350M equity infusion; strategic pivot to premium: CNBC, March 12, 2025Spirit Airlines completes financial restructuring, exits Chapter ... - Spirit Airlines second filing: August 29, 2025; Spirit Aviation Holdings; S.D.N.Y.; dwindling cash, mounting losses, weak leisure demand: CNN, August 29, 2025; Spirit Airlines press release, September 3, 2025No-frills pioneer Spirit Airlines seeks second bankruptcy in monthsSpirit Airlines Receives Court Approval of First Day Motions to ... - Spirit DIP financing: $475M from bondholders + $120M cash collateral; 40 routes suspended; 25% YoY capacity reduction; 15 cities losing all service: AirInsight, October 5, 2025Spirit Airlines Shrinking Fleet in 2nd 2025 Bankruptcy | - AirInsight - Spirit AUA and ground handling contract rejection at 11 airports (October 2025): ch-aviation via LinkedIn, September 30, 2025Spirit Airlines rejects airport contracts for 11 airports - LinkedIn - Spirit motion to reject 87 aircraft leases (~40% of 214-jet fleet); AerCap settlement terminating 27 leases + $150M payment to Spirit; exits from BDL, MSP, and 12+ airports: Adept Travel, October 3, 2025Spirit's plan: slash fleet, retrench network in Chapter 11 - Spirit restructuring plan (February 2026): debt/lease obligations from $7.4B to $2.1B; fleet to ~94–106 aircraft; focus on FLL, MCO, DTW, NYC; peak-day scheduling; premium expansion: Reuters, February 24, 2026; Lara News, February 25, 2026; KHOU, February 23, 2026Spirit Airlines plans to cut more flights and sell planes to emerge ...Spirit seals deal with lenders to emerge from bankruptcy as ...Spirit Airlines to emerge from second bankruptcy as a shadow of ... - Spirit fleet comparison (pre-bankruptcy 214 aircraft vs. post-emergence ~94–106): Lara News (February 25, 2026)Spirit Airlines to emerge from second bankruptcy as a shadow of ... - Business Insider summary of two filings timeline and traveler impact: Business Insider, November 12, 2025Spirit Airlines is back in bankruptcy. What it means for travelers. - Moody's airport methodology — carrier base quality scoring: Moody's, "Publicly Managed Airports and Related Issuers," February 2023Infrastructure and Project Finance

> This article was prepared with AI-assisted research by DWU Consulting. It is provided for informational purposes only and does not constitute legal, financial, or investment advice. All data should be independently verified before use in any official capacity.

Sources

Changelog

2026-03-13 — Gold standard upgrade: added Scope & Methodology box, standardized changelog and copyright footer.
2026-03-13 — Initial publication.

Sources & Quality Assurance

U.S. Code & Statutes

• 14 CFR § 158.49 - Handling of PFC's. - LII
• 11 U.S. Code § 365 - Executory contracts and unexpired leases
• 11 U.S. Code § 1110 - Aircraft equipment and vessels - LII
• 11 USC 365: Executory contracts and unexpired leases - OLRC Home
• In the Matter of Braniff Airways, Inc., Debtor.memphis-shelby County Airport Authority, Plaintiff-appellee, v. Braniff Airways, Inc., Defendant-appellant, 783 F.2d 1283 (5th Cir. 1986)
• 2023 U.S. Code :: Title 11 - Bankruptcy :: Chapter 5 - Creditors, the Debtor, and the Estate :: Subchapter I - Creditors and Claims :: Sec. 503 - Allowance of administrative expenses
• 11 U.S. Code § 503 - Allowance of administrative expenses
• 11 USC 503: Allowance of administrative expenses - OLRC Home
• 11 USC 365: Executory contracts and unexpired leases
• 49 U.S. Code § 40117 - Passenger facility charges - LII
• 49 USC 40117: Passenger facility fees - OLRC Home
• 2021 U.S. Code :: Title 11 - Bankruptcy :: Chapter 11 - Reorganization :: Subchapter I - Officers and Administration :: Sec. 1110 - Aircraft equipment and vessels

Federal Regulations (FAA, DOT)

• [PDF] 776 PART 158—PASSENGER FACILITY CHARGES (PFC'S ...
• [PDF] Federal Aviation Administration, DOT § 158.49
• 785
• Passenger Facility Charge (PFC) Programwww.faa.gov › Airports
• [PDF] Federal Aviation Administration, DOT § 158.53 - GovInfo
• [PDF] Federal Register/Vol. 65, No. 69/Monday, April 10, 2000/Proposed ...
• [PDF] Subpart C—Collection, Handling, and Remittance of PFC's - GovInfo
• Passenger Facility Charge (PFC) Notice of Proposed ...
• [PDF] 776 PART 158—PASSENGER FACILITY CHARGES (PFC'S ...
• [PDF] Federal Aviation Administration, DOT § 158.49 - GovInfo

Spirit Airlines Official Filings

• Spirit Airlines Receives Court Approval of First Day Motions
• SPIRIT AIRLINES INC | 21st November 2024 - Solactive
• Spirit Airlines to emerge from second bankruptcy as a shadow of ...
• Spirit's plan: slash fleet, retrench network in Ch