Talks over a $500 million government rescue deal have collapsed, leaving Spirit Airlines on the verge of shutting down, according to The Wall Street Journal.

With its cash position deteriorating, the carrier had sought to lock in the government financing. But The Journal, citing unnamed sources, reports that opposition from certain bondholders prevented the deal from coming together. A Spirit spokesperson told the outlet that the airline continues to operate normally and would not address the reported talks.

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Shares of Spirit fell by as much as 74% following the news, while rival carriers including JetBlue Airways and Frontier Group Holdings saw their stocks climb.

Bloomberg had previously reported that the financing negotiations stalled after a creditor group that includes Citadel pushed back against proposed terms it said would result in deep losses for lenders.

The collapse ends a government intervention effort that had been led by Commerce Secretary Howard Lutnick, with the Trump administration exploring a deal that would have given the government warrants to acquire as much as 90% of the restructured carrier. President Donald Trump had publicly signaled openness to a bailout, telling CNBC that Spirit's situation involved 14,000 jobs and that federal help might be warranted.

Spirit has been attempting to exit its second bankruptcy as a smaller airline, having filed for Chapter 11 protection a second time in August 2025 after losing almost $257 million following its exit from its first bankruptcy in March of that year. The plan called for shrinking its fleet to between 76 and 80 aircraft, concentrating operations around Fort Lauderdale, Orlando, Detroit, and New York City, and cutting total debt and lease obligations from $7.4 billion to about $2 billion.

The airline's finances were further strained by a spike in jet fuel prices tied to the conflict between the U.S., Israel, and Iran, which threatened to push Spirit's projected 2026 operating margin from negative 7% to negative 20%. That fuel shock upended a creditor-backed reorganization plan that had appeared on track to wrap up by early summer.

Spirit filed for bankruptcy a second time after several setbacks. These included a Pratt & Whitney engine recall that grounded many of its Airbus jets starting in 2023, and a federal court decision that blocked a planned JetBlue takeover for antitrust reasons. Earlier, Spirit had turned down a merger offer from Frontier in 2022, choosing the JetBlue deal that was later blocked.

Spirit Airlines is preparing to shut down after a rescue deal collapsed

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