(Bloomberg) -- Spirit Airlines Inc. filed for bankruptcy on Monday with a plan to hand over control to bondholders after failing to agree on a merger with rivals.

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The airline sought Chapter 11 protection in New York to restructure $1.6 billion of debt, according to court filings. It said will continue to operate normally throughout the bankruptcy process, which should complete in the first quarter of 2025.

Spirit had been seeking to tie up with rivals amid competition from traditional carriers and higher inflation. It was forced to start restructuring talks with creditors after a federal judge blocked a $3.8 billion acquisition by JetBlue Airways Corp., ruling the combination would harm cost-conscious travelers by driving up the price of airline tickets across the industry. Separate talks for a merger with Frontier Group Holdings Inc. also fell apart in recent weeks, paving the way for the bankruptcy filing.

The discount carrier has reached a broad overhaul agreement with creditors holding about 80% of the debt to be restructured and has enough support to receive court approval, according to court documents.

Under the plan, which can be revised during the Chapter 11 process, existing bondholders will swap $795 million of their notes for equity, while shares will be delisted. Holders of senior secured and convertible notes will receive $840 million of new secured notes. Bondholders also committed to inject $350 million of fresh equity and provide $300 million of debtor-in-possession financing to support Spirit throughout the Chapter 11 process.

The carrier said it has about $3.6 billion in long term debt, including $136 million in unsecured term loans it owes the federal government as part of Covid-19 pandemic-era related support.

Post-Covid Blues

Spirit, which employs 12,800 people, has struggled following the Covid-19 pandemic as the largest US carriers stepped up use of basic economy fares to lure travelers away, while part of its fleet was grounded by an engine manufacturing defect. Most recently, fares were held down during the crucial summer travel period because airlines put too many seats into the domestic market.

The developments kept Spirit from the constant growth that’s needed to keep the discount model successful, offering rock-bottom fares but making money by charging for items such as coffee, bottled water, carry-on bags and printed boarding passes.