Bankrupt Airlines: Four’s a Crowd

Frontier joins the list. But unlike the others, it plans to keep flying, as its main issue is a dispute with its credit-card processor.
Stephen TaubApril 11, 2008

In what is becoming almost a weekly occurrence, another airline has filed for bankruptcy. Frontier Airlines is the fourth carrier to do so in recent weeks, following ATA Airlines, Skybus, and Aloha Airgroup.

However, Frontier asserts that its situation is much different. Following an unexpected attempt by its principal credit-card processor to substantially increase a “holdback” of customer receipts, which threatened to have a severe impact on Frontier’s liquidity, the airline was forced to file a voluntary petition for reorganization under Chapter 11.

CEO Sean Menke elaborates that the credit-card processor told the airline that beginning on April 11, it intended to start withholding significant proceeds received from the sale of Frontier tickets. “This change in established practices would have represented a material change to our cash forecasts and business plan,” he says. “Unchecked, it would have put severe restraints on Frontier’s liquidity and would have made it impossible for us to continue normal operations.” Menke notes that the automatic stay provision of the bankruptcy code prohibits the credit-card processor from going ahead with the increased holdback.

Unlike the other airlines that went bankrupt, Frontier plans to continue normal business operations throughout its reorganization, including operating its full schedule of flights. “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,” says Menke. “Given the recent progress we have made toward strengthening our balance sheet and obtaining additional financing, it is truly unfortunate that we have had to take this action.”

In other bankruptcy news, The Wall Street Journal reports that struggling specialty retailer Linens ‘n Things may file for bankruptcy protection by early this week.

On the other hand, on Thursday Federal-Mogul Corp., which emerged from Chapter 11 late last year, said its class A common stock will be listed on the Nasdaq Global Market starting April 23 under the ticker symbol FDML. And earlier this week, Movie Gallery Inc., the parent of video-rental chain Hollywood Video, said it expects to exit Chapter 11 early in the second quarter now that a federal bankruptcy court has approved its second amended plan of reorganization.

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