Frontier plans to exit Chapter 11 next year

Washington DC
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Frontier Airlines is seeking an investor as the company puts together a Chapter 11 exit strategy aimed at leaving bankruptcy between April and June next year.

Denver-based Frontier will bolster liquidity this month and next with its final Airbus A319 sales of the year, but the company will not take further post-petition debtor-in-possession (DIP) financing from Republic Airways Holdings, Credit Suisse Securities affiliates and AQR Capital.

Outgoing A319s round out an eight-aircraft sale to VTB Leasing valued at $80 million.

"We're comfortable where we are right now with the proceeds of the sales of the four aircraft coming in the next two months," a Frontier spokesman says, explaining why the airline will not take a second DIP tranche at this point.

Frontier has accepted $30 million out of the $75 million DIP financing package. Payment of that loan is due in April just as the carrier prepares for its Chapter 11 emergence.

However, the judge overseeing Frontier's case appears concerned about the company's cash and cash equivalents, which were $72.7 million as of 30 September, down from $74.2 million on 30 August.

"The DIP facility, plus the debtor's cannibalization of excess aircraft, has resulted in a relatively modest cash cushion, but it is clear to me from the debtor's disclosed projected sources and uses of cash that the company will have a dangerously low cash level if it is not able, by the first quarter of 2009, to attract an exit lender and/or investor to enable it to emerge from Chapter 11," Robert Drain said in a 31 October court document.

Frontier has been working toward a goal of trimming $110 million from its expenses. It cut under $20 million in marketing and distribution costs and eliminated $37.1 million in employee reductions in light of a 20% capacity reduction, Drain says.

The carrier has also reached long-term and temporary wage and benefits concessions with several union and non-union employee groups.

Frontier has "been on target so far in most of our savings goals," the airline spokesman says.

Negotiations continue with the Frontier Airline Pilots Association (FAPA) as temporary concessions agreed to in October end on 1 December, the Frontier spokesman says.

The airline has already inked long-term concessions with dispatchers represented by the Transportation Workers Union (TWU) and received court-approval for concessions from three employee groups represented by the International Brotherhood of Teamsters (IBT).

While Frontier reached tentative concessions with its appearance agents, the carrier's court-approved attempt to dissolve the collective bargaining agreements with maintenance and material specialists is being appealed by IBT.

Teamsters Local 961 president Matthew Fazakas says he expects the appeal to be heard in December or early January.