Frontier Airlines has become the latest US carrier to file for Chapter 11 bankruptcy protection.
The Denver-based low-cost carrier says it and its subsidiaries have filed voluntary petitions for reorganisation under Chapter 11 of the US Bankruptcy Code. It says all flight operations will be maintained, however.
It says the filing is the result of “an unexpected attempt by its principal credit card processor to substantially increase a ‘holdback’ of customer receipts, which threatened to severely impact Frontier’s liquidity”.
Frontier, which operates more than 60 Airbus A320-family aircraft, is the latest US carrier to file for Chapter 11, although others that have done so in the market in recent weeks such as Aloha, ATA and Skybus have ceased operating.
President and CEO Sean Menke says: “Frontier is committed to delivering exceptional customer service and we intend to continue delivering on that promise with normal operations throughout our reorganisation process. 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.”
He says the carrier has been making progress in strengthening its balance sheet and obtaining additional financing, adding that it has not seen a decrease in customer demand in recent weeks.
“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. 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. The automatic stay provision of the bankruptcy code prohibits the credit card processor from increasing its holdback, and we are prepared to litigate this issue if necessary.”
He adds: “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.”