Bankruptcy Courts Getting Crowded With Airlines

"April is the cruelest month." That line comes from T.S. Eliot... who, to our knowledge, never worked for a US commercial airline, but with that mindset he certainly could have. On Friday, Frontier Airlines shocked the industry with the sudden announcement it has filed for Chapter 11 bankruptcy protection... the fourth US airline to do so in the past three weeks.

The Denver-based carrier said the move was necessary, "following an unexpected attempt by its principal credit card processor to substantially increase a "holdback" of customer receipts, which threatened to severely impact Frontier's liquidity."

Frontier stresses it intends to continue normal business operations today and throughout its reorganization process, including operating a full schedule of flights, provide employee wages and benefits without interruption, and pay off its suppliers.

"Frontier is committed to delivering exceptional customer service and we intend to continue delivering on that promise with normal operations throughout our reorganization process," said Sean Menke, Frontier President and CEO. "To be clear, we filed for very different reasons than those of other recent carriers, and our customers and employees can be confident that we intend to keep on flying and providing outstanding service and products.

Menke added Frontier fully intended to stay out of Chapter 11 just days ago. "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," Menke said. "We felt that Frontier would be able to withstand the challenges confronting the US airline industry, which include unprecedented and significant increases in the cost of jet fuel and the impact of the credit crisis in the financial markets, without seeking bankruptcy protection. Frontier has continued to perform relatively well in this difficult environment, and contrary to the trend, we have not seen a decrease in consumer demand, as demonstrated by our record traffic and revenue in March.

"Unfortunately, our principal credit card processor, very recently and unexpectedly informed us that, beginning on April 11, it intended to start withholding significant proceeds received from the sale of Frontier tickets," he added. "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 automatic stay provision of the bankruptcy code prohibits the credit card processor from increasing its holdback, and we are prepared to litigate this issue if necessary.

"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 joins Aloha, ATA, and Skybus in declaring bankruptcy in recent weeks. All three of those airlines have also since discontinued operations... a trend Frontier hopes desperately to break.

FMI: www.frontierairlines.com