WHITE PLAINS, New York, May 5 (Reuters) - A judge in the Southern District of New York Bankruptcy Court said on Tuesday that it was "a horrible day for employees" after a bailout for Spirit Airlines proposed by the U.S. government fell through, leaving no way out of bankruptcy.

Judge Sean Lane allowed Spirit to proceed with its wind-down plan, which includes bonuses for employees who are staying on during the shutdown. Spirit also plans to move ahead with expedited sales of aircraft and equipment, with the flexibility to abandon some property and let the lenders and lessors reclaim it. 

The low-cost carrier is the airline industry's first casualty linked to the Iran war that has boosted oil prices.

Last week bondholders opposed the government's proposal, which would overtake them as lead creditors in exchange for warrants ​equivalent to 90% of Spirit's equity. A bondholder counterproposal was rejected by the government right away while it grew unclear how the Trump administration would fund the deal.

The court heard from Spirit lawyer Marshall Huebner that the airline had learned on Thursday that the federal financing plan would not proceed. Lenders also were not willing to provide fresh capital or release restricted capital, he said.  The airline then transported 50,000 passengers on Friday as it sought to wind down operations before it made the news public. 

Sharply higher jet fuel prices left "no remaining way out" of bankruptcy as no credible party had engaged with the company about a merger or acquisition since August, Huebner told the court.

President Donald Trump on Friday told reporters that the White House had given Spirit and its creditors a final rescue proposal after talks hit an impasse over the initial $500 million financing package that would have helped the airline keep operating through bankruptcy. "If we can help them, we will, but we have to come first," Trump told reporters. "If we could do it, we'd do it, but only if it's a good deal."

Two people familiar with the matter told Reuters, however, that the company and its creditors did not receive another offer with new terms. The government's message to Spirit was take it or leave it, one of the sources said. 

The White House did not immediately respond to a request for comment.

On Monday, U.S. Transport Secretary Sean Duffy told Fox TV: "Sometimes the government has to step in and we have, but I didn't think this was a good idea. But the President wanted to take a hard look at it."

Huebner, who apologized to Spirit customers and the American public on behalf of the carrier on Tuesday, said the airline and its lenders spent the weekend on "productive but complicated negotiations" on how to fund the wind-down operations. Without the low-cost carrier known for its bright yellow livery, Americans would spend billions of dollars more on flight tickets, he said.

At court on Tuesday, attorneys including those representing the aircraft lessors, airports, and bondholders worked out the details of the "wind-down" plan including how to get aircraft back to lessors with just six Spirit pilots still on payroll. 

The company said it does not have money to conduct an organized auction of its aircraft, engines and other equipment.

Spirit received court approval to pay about $10 million in retention bonuses to employees who remain as the company ends operations, and will pay more to the top three executives. It has not disclosed how much.

Judge Lane held back bonuses for five vice presidents that the U.S. trustee objected to, leaving it to further negotiations.

The airline has said it will retain about 150 employees before decreasing its headcount to about 40 after the first three months of bankruptcy, with expectations that its liquidation plan will be completed within that time frame.