A US budget airline is reportedly preparing to file for bankruptcy protection after talks to merge with another airline broke down.

Florida-based Spirit Airlines is preparing to seek bankruptcy protection after merger talks with Frontier Airlines fizzled, people familiar with the matter told the Wall Street Journal.

The publication reported that Spirit is in advanced discussions with bondholders to create a bankruptcy plan, with a bankruptcy filing expected to happen within weeks, according to the sources.

Its stock has fallen by nearly 80 per cent this year, with the airline saying in a statement on Tuesday that its adjusted operating margin in the third quarter is down 12 per cent from last year due to lower revenues and higher expenses.

Spirit said its revenues are estimated to be about $61m lower compared to last year, partly due to the airline no longer charging change and cancellation fees.

The airline said it is in “constructive discussions” with its noteholders that have “remained positive” to try and find a way to restructure its obligations owed and explore alternatives to improve liquidity.

This would be carried out in a Chapter 11 bankruptcy process, people with knowledge of the matter told Bloomberg.

If an agreement with the noteholders is reached, a statutory restructuring will be put into force and lead to the cancellation of Spirit’s existing equity, the airline said in its statement.

It added that if the agreement is reached it does not expect the restructuring to impact unsecured creditors, employees, customers and others associated with the airline.

However, if an agreement is not reached, the company said it will consider all alternatives.

Frontier and Spirit had been set to merge in 2022, before JetBlue Airways presented the airline’s investors with a higher offer.

In January, a federal judge barred JetBlue from acquiring Spirit as it was ruled that the deal would not be fair on low-budget airline market competition and could drive up prices for passengers.

Spirit is popular for its ultra-low-cost fares to destinations around the US, Central and South America, and the Caribbean.

Spirit has already been making cuts throughout the year, including signing a deal in October to sell 23 planes to GA Telesis for $519m and furloughing hundreds of pilots.

The Independent has contacted Spirit and Frontier for comment.

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