U.S. considers using Defense Production Act for Spirit bailout

The Trump administration is weighing whether to invoke the Defense Production Act to support a potential bailout of Spirit Aviation Holdings Inc. according to a person familiar with the matter who requested anonymity because the talks are private.

The 1950 law, enacted at the outset of the Korean War, gives the US president broad emergency powers to direct production of goods and services deemed critical to national defense, including extending loans and making investments. 

Applying the statute to a commercial airline would likely face legal and political scrutiny. It’s unclear what national-security rationale the Trump administration would use to justify it for bailing out Spirit, a budget carrier primarily serving domestic routes.

Presidents have used the law for an array of purposes in the past, including some that appeared to stray from the its core defense purpose. The statute has been invoked for everything from accelerating production of face masks during the Covid-19 pandemic to increasing supplies of baby formula during a national shortage. 

The Trump administration has also recently taken steps to deploy the law to support energy production, including to facilitate offshore oil development and bolster power-grid infrastructure as well as coal-fired electricity.

“President Trump has openly expressed his interest in helping Spirit Airlines, and the Administration continues exploring possible options to ensure the airline remains in operation for its passengers and employees,” White House spokesman Kush Desai said in a statement Friday. 

“Any reporting, however, about the mechanism or structure of any deal between the federal government and Spirit Airlines, unless officially unveiled by the Administration, should be regarded as speculation,” he said. 

CBS News reported earlier that the act was being considered as part of the rescue package. 

The deliberations come as Spirit works through a Chapter 11 restructuring after filing for bankruptcy protection amid mounting losses and debt. The airline has continued operating while it goes through the process.

Prior to the start of the Iran war, which led to a jump in jet fuel prices, Spirit had been expected to exit bankruptcy this summer after reaching an agreement with creditors on a plan to trim billions of dollars in debt and reduce the cost of its fleet.

Bloomberg has previously reported that the administration is working on a plan that would offer the airline as much as $500 million in financing in exchange for warrants to purchase up to 90% of Spirit once it emerges from bankruptcy.

The deal isn’t finalized and could still change or fall apart.

Trump said on Thursday that he’s weighing the US government purchasing Spirit to help the carrier avoid liquidation. 

This story was originally featured on Fortune.com