April 11 (Bloomberg) -- Frontier Airlines Holdings Inc., the U.S. discount carrier that serves 70 destinations from Denver, filed for bankruptcy, becoming the fourth U.S. airline to seek court protection in less than a month.
Frontier took the step after its credit-card processor, First Data Corp., began withholding proceeds from ticket sales, the Denver-based carrier said in a statement today. Frontier pledged to continue flying and keep paying workers while it seeks additional financing.
``We filed for very different reasons than those of other recent carriers,'' Frontier Chief Executive Officer Sean Menke said in the statement. ``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's action adds to the turbulence in the U.S. airline industry. AMR Corp.'s American Airlines canceled more than 3,000 flights this week to inspect and repair wiring on its Boeing Co. MD-80 jets. U.S. carriers will post combined losses of $1.2 billion in the first quarter, Ray Neidl, a New York- based analyst at Calyon Securities Inc., said in a report today.
The cost of jet fuel, soaring 78 percent in the past year, and a slowing economy were blamed for the filings of Skybus Airlines Inc., Aloha Airgroup Inc. and ATA Airlines Inc. in the past three weeks.
Higher Collateral
First Data told Frontier April 8 it would retain half the proceeds of bankcard sales and increase collateral to $130 million from $54.5 million, according to a statement by Frontier Vice President Edward Christie filed with the U.S. Bankruptcy Court in Manhattan.
The company is exploring action including an equity infusion, Christie said. Frontier is considering securing the financing with the equity in its aircraft, which Christie estimated at ``in excess of $150 million.'' In January, Frontier said it would sell four Airbus SAS planes to boost cash.
Frontier's mainline operation has 62 Airbus A320 series jetliners and its Lynx Aviation unit has 10 Bombardier Inc. regional turboprops, the company said. Frontier Airlines has debt of $500 million to $1 billion and about the same in assets, according to Chapter 11 documents filed in bankruptcy court.
Frontier's Chapter 11 filing will block efforts to collect debts from the carrier, including those proceeds that the credit-card company is seeking to retain. While the ban may be lifted by court order, Frontier said it's prepared to litigate.
If First Data's hold on proceeds went unchecked, ``it would have put severe restraints on Frontier's liquidity and would have made it impossible for us to continue normal operations.'' Menke said. First Data is based in Greenwood Village, Colorado.
Shares Drop
Frontier, the second-largest carrier at Denver International Airport, plunged 73 percent to 42 cents at 10:30 a.m. New York time in Nasdaq Stock Market trading, after tumbling 12 percent yesterday.
The 30 largest creditors without collateral backing their claims are owed a total of $109 million, court papers show. Wells Fargo & Co., the fifth-largest U.S. bank by assets, is listed as the largest unsecured creditor. It's owed $93 million. The largest secured claimholder with an $84 million claim is Q Aviation of Fort Worth, Texas.
Honolulu-based Aloha said on March 30 it was shutting down after failing to find a buyer or financing to keep flying. The carrier had applied for Chapter 11 protection on March 20, blaming a price war with Mesa Air Group Inc.'s Go! inter-island carrier.
Aloha previously filed for bankruptcy in December 2004 and emerged 14 months later.
Other Bankruptcies
ATA, based in Indianapolis, filed for court protection April 2 and ceased operations, citing fuel prices and the loss of a contract for military charter flights. ATA had exited bankruptcy in February 2006.
Skybus Airlines Inc., a U.S. low-fares carrier that started operations less than a year ago, filed for bankruptcy April 5 after stopping flights.
American Airlines has canceled 570 flights today. More than 273,000 passengers had been stranded through yesterday, and the latest cancellations may add about 63,000 others to that count. Compensating those travelers and fixing the planes will cost ``tens of millions of dollars,'' AMR Corp. CEO Gerard Arpey said yesterday.
Fuel Suppliers
Frontier also indicated in its court filings that fuel suppliers were tightening their credit terms, cutting into the company's liquidity. Frontier's average fuel cost rose from $2.12 a gallon for the quarter ended Dec. 31, 2006 to $3.39 a gallon as of April 9.
During March, Frontier bought about 430,000 barrels of jet fuel. The company sought approval from U.S. Bankruptcy Court Judge Robert Drain to continue fuel supply agreements. Frontier expects to make advance payments of $54.5 million to fuel suppliers for May, according to court papers.
The carrier serves 62 cities in 36 U.S. states, plus six in Mexico, one in Canada and one in Costa Rica. It employs about 6,000 people. Subsidiaries Frontier Airlines and Lynx Aviation also sought bankruptcy.
The case is In re: Frontier Airlines Inc., 08-11297, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
To contact the reporters on this story: Dawn McCarty in Wilmington, Delaware, at
dmccarty@bloomberg.net; Hugo Miller in Toronto at
hugomiller@bloomberg.net
Last Updated: April 11, 2008 11:04 EDT