- The Washington Times - Saturday, April 12, 2008

DENVER (AP) Frontier Airlines sought bankruptcy protection yesterday, the fourth carrier to do so over the past several weeks as exorbitant fuel prices eat into earnings and a weak U.S. economy keeps more people grounded.

Frontier says it will continue operations as it reorganizes.

Frontier Airlines Holdings Inc., the low-fare carrier’s parent, said it was forced into bankruptcy after its principal credit card processor, First Data Corp., said it would begin withholding a greater share of proceeds from ticket sales.

Denver-based Frontier said it will continue to operate a full schedule of flights, pay suppliers and employees as it reorganizes. The filing in U.S. Bankruptcy Court in New York prevents the credit card processor from increasing its “holdback,” Frontier CEO Sean Menke said.

“By filing for Chapter 11, we will now have the time and legal protection necessary to obtain additional financing and enhance our liquidity,” Mr. Menke said in a statement. “Fortunately, we believe that we currently have adequate cash on hand to meet our operating needs while we take steps to further strengthen our company.”

ATA Airlines, Skybus and Aloha Airgroup have also filed for bankruptcy in the past three weeks, but Mr. Menke said Frontier’s reasons for doing so were different.

Frontier’s agreement with First Data allowed the processer to hold 45 percent of the amount a passenger charges for a ticket until travel is completed.

Frontier spokesman Joe Hodas said First Data notified the airline this week that it would boost the holdback to 50 percent immediately and to 100 percent by May 1.

“This change in established practices would have represented a material change to our cash forecasts and business plan,” Mr. Menke said. “Unchecked, it would have put severe restraints on Frontier’s liquidity and would have made it impossible for us to continue normal operations.”

By filing for bankruptcy, Frontier can fend off First Data until a judge issues a decision or the reorganization is completed. First Data did not immediately comment.

Frontier expects the reorganization to take nine to 18 months.

John Stemmler, who heads the Frontier Airline Pilots Association, said the processor’s decision was a shock.

“Had it not been for First Data, we really had our act together,” he said.

Mr. Stemmler said he believes the airline’s 700 pilots will continue to support management.

Frontier has struggled amid rising fuel prices and aggressive competition at Denver International Airport from both United and Southwest Airlines. It blamed a 16.3 percent jump in fuel costs a third-quarter loss that more than doubled from the previous year.

At the end of last year, Frontier had assets of $98.3 million and debts of $92.2 million.

The carrier has adjusted routes, put four jets up for sale, laid off 100 employees and conducted an extensive review of its schedule in an effort to rein in costs.

Last week, Calyon Securities analyst Ray Neidl voiced concerns about some budget airlines, including Frontier. He said Frontier’s cash holdings were likely to fall well below 10 percent of expected revenue by the end of the year and estimated it would have less than 5 percent of revenue in cash at the end of 2009.

Frontier spokesman Joe Hodas said earlier this week the airline had “no concerns about bankruptcy.”

In a research note to clients yesterday, Mr. Neidl said the bankruptcy “happened more quickly than we expected.”

“We do not see a future for Frontier as it faces tough competition in Denver from United on the network side and Southwest on the low cost side,” he wrote.

Industry analyst Mike Boyd said it appears the bankruptcy was triggered by Wall Street speculation about Frontier, which likely raised concern at First Data.

“When rumors start, it can kill an airline,” he said.

Frontier carries about 21 percent of the overall traffic at Denver International and leases about 20 gates, dominating one of the airport’s three concourses.

Frontier passenger Preston Tucker, 19, a University of Colorado student, said he didn’t expect the filing to affect his plans.

“As long as they keep flying, it is not going to cause problems,” he said.

Frontier opened in 1994 with fewer than 200 employees and two planes, flying between its Denver home and three cities in North Dakota. The airline now has about 350 flights to more than 60 cities and employs about 6,000 people.


Destinations: 60 in the U.S., five in Mexico, one in Costa Rica and one in Canada

Flights: 350 daily departures systemwide

Fleet: 62 aircraft, including two Airbus 320s, 49 Airbus A319s and 11 Airbus A318s Subsidiary Lynx Aviation has 10 Bombardier Q400s

Passengers: About 12 million annually

Employees: About 6,000, including more than 710 pilots, more than 1,040 flight attendants and more than 300 mechanics

Subsidiaries and partners: Subsidiary Lynx Aviation and regional partner RepublicFrontier together fly to 16 regional destinations under the Frontier name. Frontier also offers flights to 35 regional destinations under a codeshare agreement with Great Lakes Aviation.

Hub: Denver International Airport

Headquarters: Denver

Source: Associated Press

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