Frontier Airlines Files For Bankruptcy

Frontier Airlines Holdings Inc. has filed for Chapter 11 bankruptcy protection, but unlike other airlines filing for bankruptcy in recent weeks, it plans to keep running while it reorganizes.

The low-fare carrier said its filing Friday came after an unexpected attempt by its principal credit card processor to start withholding significant proceeds from the sale of Frontier tickets, which threatened to hurt Frontier's liquidity.

The Chapter 11 filing in U.S. Bankruptcy Court in New York prevents the credit card processor from increasing its "holdback," Frontier CEO Sean Menke 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," Menke said in a statement.

The Colorado carrier's woes come as the U.S. aviation industry struggles to cope with myriad problems. American Airlines said it was cancelling 570 more flights on Friday - marking the fourth straight day of large-scale cancellations since the nation's largest airline learned that the wiring on 300 planes needed to be re-inspected.

Alaska Airlines has also cancelled some flights for inspections, and so has Midwest Airlines.

A recent industry survey found that more bags were lost, more passengers were bumped, more consumers complained and fewer flights arrived on-time than in the previous year. The overall "quality score" the researchers gave the industry (-2.16) was the lowest in the nearly two decades they've been studying the airlines.

Frontier, whose major hub is in Denver, has been affected as other airlines have by rising fuel costs and the credit crisis in financial markets.

ATA Airlines, Skybus and Aloha Airgroup all have filed for bankruptcy recently, but Menke said Frontier's reasons for doing so were different.

"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 said. "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."

He said Frontier was prepared to litigate, if necessary.

A Frontier spokesman had said earlier this week the airline had "no concerns about bankruptcy" but added that it was working on strengthening its cash position.

Last month, Frontier said it had agreed to sell four planes as it dealt with rising fuel costs. According to the company's Web site, Frontier operates a fleet of 62 aircraft in total.