Rewrites throughout to include sourcing, context

By Doyinsola Oladipo and Sabrina Valle

Jan 22 (Reuters) - Spirit Airlines FLYYQ.PK has drawn fresh interest from a potential buyer, with investment firm Castlelake entering talks to acquire the bankrupt carrier, after an offer in November from rival Frontier Group Holdings ULCC.O was deemed unviable, according to four people familiar with the matter.

While the Castlelake discussions may not result in a viable offer — or a deal — they have revived hopes that Spirit, in its second bankruptcy filing in less than a year, might still secure an exit through a sale rather than emerge as a significantly smaller airline or risk liquidation. Castlelake's interest was first reported by CNBC.

Spirit and Frontier declined to comment. Castlelake did not immediately respond to a Reuters request for a comment.

'A VERY DIFFERENT SPIRIT'

The company is betting on its survival.

"I think it's fair to say that the airline has been substantially reenvisioned and almost completely reinvented in the last several months," said Marshall Huebner, partner at Davis Polk & Wardwell representing Spirit during a hearing on Wednesday at the U.S. Bankruptcy Court for the Southern District of New York.

"This is a very different Spirit. It's smaller, it's tighter, it's better," he said.

Spirit’s creditors have kept the carrier afloat during its second Chapter 11 by extending emergency financing, including a $100 million lifeline secured in December to support operations and restructuring.

What happens next could determine whether Spirit survives at a fraction of its current size, is acquired, or disappears altogether. The pilots’ union is publicly pressuring bondholders to release further financing to avoid liquidation.

"What remains unresolved is whether its bondholders will honor their existing funding commitments and allow a restructuring to proceed, or whether they will instead force a liquidation that would destroy South Florida’s hometown airline," the Air Line Pilots Association, the union representing Spirit's pilots, said in a January 13 letter to Spirit bondholders.

Spirit’s troubles are in part due to a tougher environment for discount airlines: excess capacity, tepid leisure travel demand and fare pressure intensified by legacy carriers flooding the market with low‑fare seats. The industry never saw the hoped‑for rebound in 2025, leaving Spirit overextended and forced into drastic cost‑cutting, Spirit CFO Fred Cromer told creditors.

That combination undermined Spirit’s turnaround after its first bankruptcy and caused the airline to shrink its fleet in October by nearly 100 aircraft, exiting more than a dozen U.S. markets and suspending around 40 routes as part of its restructuring plan.

Spirit's future appears increasingly uncertain, with cash running low during its bankruptcy proceedings, which began in August, marking its second in less than a year.

In August, Castlelake launched Merit AirFinance, an aviation lending platform backed by $1.8 billion in deployable capital, which aims to provide debt financing to airlines and aircraft lessors for new and used aviation assets.

(Reporting by Sabrina Valle and Doyinsola Oladipo in New York, additional reporting by Shivansh Tiwary, Abhinav Parmar and Nathan Gomes in Bengaluru; Editing by Shailesh Kuber, Vijay Kishore, Rod Nickel)

((Abhinav.Parmar@thomsonreuters.com;))