Frontier Airlines Files For Bankruptcy; Flights To Continue - Update [FRNT]


4/11/2008 6:53:46 AM Friday, Frontier Airlines Holdings, Inc. (FRNT) announced that it had filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code. The low-fare jet service carrier said that, unlike other rivals who had filed for bankruptcy, it would continue normal operations during the reorganization process.


Denver, Colorado-based Frontier said that the decision follows an unexpected attempt by its main credit card processor to begin withholding proceeds received from the sale of tickets, which could significantly impact the company's liquidity.


Commenting on the decision to file for bankruptcy, Sean Menke, President and Chief Executive Officer, said, “By filing for Chapter 11, we will now have the time and legal protection necessary to obtain additional financing and enhance our liquidity. 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."


Frontier, the holding company for Frontier Airlines, filed the Chapter 11 cases in the U.S. Bankruptcy Court for the Southern District of New York. The company said it filed motions with the Court seeking interim relief to conduct daily operations as smoothly as possible.


The company's main bankruptcy counsel is Davis Polk & Wardwell.


Frontier said that it expects to operate its full schedule of flights and honor tickets and reservations and provide refunds and exchanges as usual. The company added that it would provide employee wages, healthcare coverage, vacation, sick leave and similar benefits and pay suppliers for goods and services received during the reorganization period.


Sean Menke said that even though Frontier was affected, like other airlines, by the unprecedented and significant hike in jet fuel costs and the credit crisis in the financial markets, the company was confident of withstanding the crisis without seeking bankruptcy protection.


The company, which employs 6,000 people, was filing voluntary petitions for reorganization under Chapter 11 as its principal credit card processor unexpectedly gave the information that beginning April 11 it planned to begin withholding significant proceeds received from the sale of Frontier tickets. “This change in established practices would have represented a material change to our cash forecasts and business plan. Unchecked, it would have put severe restraints on Frontier's liquidity and would have made it impossible for us to continue normal operations,” the Chief Executive noted.


According to Frontier, the automatic stay provision of the bankruptcy code prohibits the credit card processor from increasing its holdback, and the company is ready to litigate the issue if necessary.


Despite the difficult working environment, Frontier reported high passenger traffic, revenue passenger miles and load factor in March. Mainline revenue passenger miles increased 14.7% to 942.37 million from 821.33 million in the same period of last year. Mainline load factor rose 7.6% to 84.4% from March 2007 load factor of 76.8%. The airline carried 953,078 mainline passengers during March 2008, a 10.1% increase from 866,004 passengers in the prior year.


In March, as parts of efforts to meet the rising fuel costs, Frontier sold two of its 49 Airbus A319 aircraft and two of its 11 Airbus A318 aircraft to VTB Leasing for onwards lease to Rossiya Airlines.


In January, the company had reported wider third quarter loss of $32.5 million or $0.89 per share, hurt by rising fuel prices. Quarterly revenues had, however, risen to $333.91 million from $271.25 million last year.


The Chapter 11 documents filed with the US Bankruptcy Court reveal that Frontier Airlines has debt of $500 million to $1 billion and about $98.3 million in assets. The airline said that it had less than 50 creditors.


The US airline industry has been badly affected by a slowing economy and jet fuel costs, which have jumped 70% during the last one year. Fuel is the biggest cost in the airline industry. The slowing down of the economy has affected consumer spending, which in turn is affecting business of the airlines. Both the factors have dampened the industry's modest recovery from the 2001-2006 downturn.


Many airlines are beginning to shrink to cope with much tougher operating conditions and as a result have shut down operations. Several small airlines Aloha Airlines, ATA Airlines Inc. and Skybus Airlines have l cancelled operations during the last one month. On April 3, ATA Airlines Inc. filed for Chapter 11 bankruptcy for the second time and discontinued all operations following the cancellation of a key military charter agreement, which made it impossible for the airline to obtain additional capital to sustain its operations or restructure the business. The airline was affected by the soaring jet fuel prices.


ATA Airlines had first filed for Chapter 11 bankruptcy protection in October 2004. The carrier was brought out of bankruptcy in 2006 by MatlinPatterson Global Opportunities Partners LP.


Aloha Airlines of Aloha Airgroup, Inc. had filed for Chapter 11 bankruptcy protection on March 20, citing unfair competition and rising fuel prices. The airliner had said that unfair practices of competitors had forced the company to take the decision.


Skybus Airlines announced its decision to cease all operations, with effect from April 5, as it could not overcome the combination of rising jet fuel costs and a slowing economic environment. The company said that its financial condition is such that the Board of Directors had no choice but to stop all operations.


Charter carrier Champion Air has announced that it would shut down operations, effective May 31.


FRNT closed Thursday's regular trade at $1.57, down $0.22 or 12.29%, on a volume of 1.42 million shares.

I used to use Frontier years ago when I still flew. Oh, well.....

quote:

Originally posted by dave clark:
I used to use Frontier years ago when I still flew. Oh, well.....

I don't remember who I last flew with, but I had to keep swapping seats with my brother-in-law. I got my ticket too late to get a seat in the smoking section.

If Man was meant to fly, there would still be smoking sections.