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Last week, three airline shutdowns (Aloha, ATA & SkyBus) and now Frontier, specifically due to liquidity problems of one of their credit card processors:
http://www.forbes.com/markets/econom...markets17.html
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Market Scan
Chapter 11: The Final Frontier
Miriam Marcus, 04.11.08, 2:10 PM ET
Frontier Airlines Holdings
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Despite high traffic and strong March sales Frontier Airlines is joining the crowd of airlines filing for bankruptcy. This time, however, consumer demand and high oil prices are not part of the equation.
On Friday Frontier Airlines Holdings (nasdaq: FRNT - news - people ), announced it filed for Chapter 11 in the U.S. Bankruptcy Court in New York. Frontier is just the latest in an increasingly long line of airlines to see its fortunes decline during the current economic downturn, although the particulars of its case are unique.
Frontier shares plummeted 72.0%, or $1.13, to 44 cents in midday trading Friday.
Frontier’s chief executive Sean Menke, said the airline saw record traffic and sales in March, contrary to the trend of decreasing consumer demand seen elsewhere in the industry. He attributes Frontier’s lack of liquidity not to surging fuel prices but to its principal credit card processor.
First Data, one of Frontier’s creditors, informed the airline it will significantly increase its "holdback" of receipts and proceeds from ticket sales starting April 11, limiting the airline's liquidity. Wells Fargo (nyse: WFC - news - people ) has Frontier’s largest general unsecured claim, which means they've lent more money to the airline without collateral than any other creditor.
“This change in established practices would have represented a material change to our cash forecasts and business plan,” said Menke. “Unchecked, it would have put severe restraints on Frontier’s liquidity and would have made it impossible for us to continue normal operations.”
Bankruptcy code dictates that the Denver, Co.-based airline’s filing forbids Wells Fargo, the creditor, from increasing its withholding of funds, securing time for the airline to reorganize its finances while continuing its operations.
Frontier said it would maintain its business throughout the process, including flights, honoring reservations and refunds “as usual,” rewards programs, providing employee wages and benefits, and paying its suppliers.
“This is not a troubled airline,” said Michael Boyd, an independent airline industry consultant in Englewood, Co. Boyd argued that Frontier is a victim of a “gossip and innuendo in the media.” He explained that credit card companies withhold certain amounts of cash to protect itself.
Various media outlets predicted that Frontier would file for bankruptcy, causing Wells Fargo and other financial institutions to “get squirrelly about airlines,” and increase its holdback, Boyd said. “It’s like cutting off an artery to the brain” and “could knock down any airline.”
Last week, three airline shutdowns (Aloha, ATA & SkyBus) and now Frontier, specifically due to liquidity problems of one of their credit card processors:
http://www.forbes.com/markets/econom...markets17.html
E-Mail | Print | Request Reprints | E-Mail Newsletters | RSS
Market Scan
Chapter 11: The Final Frontier
Miriam Marcus, 04.11.08, 2:10 PM ET
Frontier Airlines Holdings
Tear Sheet Chart News
Popular Videos
Billionaires Of Basketball
NBC Bets Big On 'The Office'
Jay-Z's Big Deal
Yankees' Super Stadium
Investors Pick Tobacco
Related Stories
Regional Airlines Bulk Up To Fight Majors
Most Popular Stories
Young Billionaires
Easily Overlooked Tax Deductions
The No-Tech Hacker
Job Hunting In A Downturn
How To Tap Lenders When Credit Is Tight
Despite high traffic and strong March sales Frontier Airlines is joining the crowd of airlines filing for bankruptcy. This time, however, consumer demand and high oil prices are not part of the equation.
On Friday Frontier Airlines Holdings (nasdaq: FRNT - news - people ), announced it filed for Chapter 11 in the U.S. Bankruptcy Court in New York. Frontier is just the latest in an increasingly long line of airlines to see its fortunes decline during the current economic downturn, although the particulars of its case are unique.
Frontier shares plummeted 72.0%, or $1.13, to 44 cents in midday trading Friday.
Frontier’s chief executive Sean Menke, said the airline saw record traffic and sales in March, contrary to the trend of decreasing consumer demand seen elsewhere in the industry. He attributes Frontier’s lack of liquidity not to surging fuel prices but to its principal credit card processor.
First Data, one of Frontier’s creditors, informed the airline it will significantly increase its "holdback" of receipts and proceeds from ticket sales starting April 11, limiting the airline's liquidity. Wells Fargo (nyse: WFC - news - people ) has Frontier’s largest general unsecured claim, which means they've lent more money to the airline without collateral than any other creditor.
“This change in established practices would have represented a material change to our cash forecasts and business plan,” said Menke. “Unchecked, it would have put severe restraints on Frontier’s liquidity and would have made it impossible for us to continue normal operations.”
Bankruptcy code dictates that the Denver, Co.-based airline’s filing forbids Wells Fargo, the creditor, from increasing its withholding of funds, securing time for the airline to reorganize its finances while continuing its operations.
Frontier said it would maintain its business throughout the process, including flights, honoring reservations and refunds “as usual,” rewards programs, providing employee wages and benefits, and paying its suppliers.
“This is not a troubled airline,” said Michael Boyd, an independent airline industry consultant in Englewood, Co. Boyd argued that Frontier is a victim of a “gossip and innuendo in the media.” He explained that credit card companies withhold certain amounts of cash to protect itself.
Various media outlets predicted that Frontier would file for bankruptcy, causing Wells Fargo and other financial institutions to “get squirrelly about airlines,” and increase its holdback, Boyd said. “It’s like cutting off an artery to the brain” and “could knock down any airline.”
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