Frontier Airlines files for bankruptcy, plans to keep flying

ByBarbara De Lollis, USA TODAY

— -- Frontier Airlines filed for bankruptcy reorganization Thursday to block a move by its main credit card processor to withhold higher levels of ticket sales receipts.

First Data Corp.'s move followed the recent shutdown of three small airlines — Aloha, ATA and Skybus — that resulted in thousands of passengers asking their credit card companies for refunds on tickets they bought.

Frontier Airlines CEO Sean Menke says that Frontier will continue to function normally as it restructures under Chapter 11 of the federal bankruptcy code.

Had First Data succeeded "it would have put severe restraints on Frontier's liquidity and would have made it impossible for us to continue normal operations," Menke said.

"Given the recent progress we have made towards strengthening our balance sheet and obtaining additional financing, it is truly unfortunate that we have had to take this action," said Menke, who took over as CEO last September and has been focused on turning the company around.

For the quarter ended Dec. 31, Frontier lost $33 million, vs. a $14 million loss for the same period in 2006.

Menke says that Frontier would have been able to withstand the pressures that airlines face today, such as soaring fuel prices, without seeking protection from creditors. But a filing in the U.S. Bankruptcy Court in New York became necessary to gain time and legal protection needed to obtain extra financing, he says.

First Data spokeswoman Elizabeth Grice says the "terms of our agreement with Frontier Airlines are not unique; they are considered standard industry practice and terms originally agreed upon by Frontier. We have been in ongoing dialogue with Frontier Airlines for several months and will continue to work with them in as constructive a manner as possible."

Frontier carries about 12 million passengers each year mostly in and out of Denver, the USA's fifth-busiest hub and one of Southwest Airlines' targets for expansion this spring. Frontier is Denver's second-largest airline after United Airlines and handles about 22% of passengers, says Chuck Cannon, a Denver airport spokesman.

"This is going to be a typical Chapter 11," says Michael Boyd, a Denver-based aviation consultant who tracks the industry.

Instead of underscoring Frontier's weakness, Boyd says First Data's action against Frontier illustrates how jittery credit card companies are following the surprise airline closures, which are partly related to soaring fuel prices.

Frontier isn't nearly as troubled as some analysts say it is, Boyd says.

He considers recent moves Menke has made — such as laying off 100 employees, selling four aircraft to raise money and cancelling some newly-launched routes — to be signs of an airline that's reorganizing itself rather than getting ready to fold.

"They are one tight airline, very well managed, with full flights and increasing revenues," Boyd says.

Frontier has eliminated or reduced flights between Dallas/Fort Worth and Mazatlán, Mexico, as well as between Denver and several Florida cities. At the same time, it has increased service on other routes out of Denver.

But Wall Street analysts have been speculating whether the discounter — whose aircraft tails feature distinctive paint schemes of dolphins, grizzly bears, wolves and other animals — can survive in today's environment given fuel and rising competition at its Denver hub.

In an April 7 report, for instance, JPMorgan Chase airline analyst Jamie Baker wrote that Frontier had enough cash to take it "well into calendar 2009." Yet he cited Frontier among the smaller U.S. discounters that may "succumb to the pressures of recessionary demand and record fuel."

Several senior executives have left the company since September. They include founder and former CEO Jeff Potter, senior marketing executive John Happ, and just last month, chief financial officer Paul Tate, and general counsel David Sislowski.

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