Frontier Airlines Files for Chapter 11 Bankruptcy Protection

DENVER - Frontier Airlines Holdings, Inc., a discount airline based in Denver, has announced it has filed for Chapter 11 bankruptcy protection this morning. The low-cost carrier is the fourth airline in the last month to file for bankruptcy protection.

However, according to a statement released by the airline, the reasons for Frontier's decision to file differ from the reasons of other carriers.

"We filed for very different reasons than those of other recent carriers,'' Frontier CEO 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.''

This unexpected move was triggered by a credit card processor's choice to withhold money from ticket sales, affecting the airline's fragile liquidity, according to the statement released today. Frontier did not release the name of the credit card processing company, but have pledged to keep flying and keep paying employees while they seek additional financing.

It has been a busy week in the airline industry, with many negative headlines affecting companies and travelers alike. American Airlines canceled more than 9,000 flights this week to inspect wiring on their fleet of Boeing MD-80s, and it has been reported that US airline carriers will lose a combined $1.2 billion in the first quarter of 2008, according to Calyon Securities, Inc, Reuters reported.

"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,'' Menke said. "Unchecked, it would have put severe restraints on Frontier's liquidity and would have made it impossible for us to continue normal operations.''

This morning, Frontier stock plummeted 38 cents a share before normal NASDAQ trading.

The carrier had been confident that it could compete with rising fuel costs, as demand for their services has not decreased. However, the latest action of the credit card processor changed everything.

"Fortunately," said Menke 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."