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Frontier Airlines lines up bankruptcy exit financing

23-Jun-2009
Frontier CEO, Sean Menke
Frontier CEO, Sean Menke

After months of discussions with a number of potential investors, Frontier Airlines has now confirmed exit financing, marking a key milestone in the carrier's efforts to emerge from bankruptcy protection. Frontier has entered into an investment agreement with Republic Airways Holdings, under which Republic will serve as equity sponsor for Frontier's reorganisation and purchase 100% of the equity in the reorganised company for USD108.75 million, subject to bankruptcy court approval and various conditions.

While the USD109 million investment is a huge leap forward for Frontier, it falls short of the USD125-150 million the carrier previously stated it required to emerge from Chapter 11 as a sustainable entity. Nevertheless, the carrier expects to conclude the sale process and emerge from Chapter 11 by the Northern Autumn 2009.

To become a subsidiary of Republic Airways Holdings

If the reorganisation plan is approved and implemented as proposed, upon its emergence from Chapter 11, Frontier Airlines Holdings would become a wholly-owned subsidiary of Republic, joining Chautauqua Airlines, Republic Airlines and Shuttle America as a subsidiary of the group. Frontier Airlines and Lynx Aviation however would maintain their current names and continue to operate as usual.

Frontier has filed its proposed plan of reorganisation and a related disclosure statement with the US Bankruptcy Court for the Southern District of New York. Frontier also filed a motion to approve the investment agreement with Republic, subject to higher and better proposals under a court-supervised auction. Frontier will seek court approval of the investment agreement and proposed auction procedures at a hearing scheduled for 13-Jul-09.

Another phase to the rocky Frontier-Republic relationship 

In Mar-2009, Frontier received a firm commitment for immediate funding of USD40 million in post-petition debtor-in-possession (DIP) financing from Republic Airways Holdings (the loan runs through to 01-Dec-09, with the new terms reducing the interest rate from 14% to 13% and proviing lower commitment fees) to support Frontier's additional working capital requirements and refinance its expiring DIP loan, increasing the available financing and preserving Frontier's financial stability. As a condition to the loan, Frontier agreed to capital requirements. As a condition of the loan, Frontier has agreed to allow Republic a stipulated damage claim for USD150 million.

However, the relationship between Frontier and Republic Airways has not always been so rosy. On 23-Apr-08, as one of its initial cost-cutting decisions as part of its bankruptcy proceeding, Frontier rejected its regional jet service contract (entered into on 11-Jan-09) with Republic Airways. The agreement provided for a structured reduction and gradual phase-out of Republic's 12 aircraft which had been delivered to Frontier. The phase-out was completed on 22-Jun-08, with Republic at one point threatening to file a USD260 million claim against Frontier for breach of contract.  

Files for bankruptcy protection; but intends to keep on flying

Frontier Airlines, while filed for Chapter 11 bankruptcy protection on 11-Apr-2008, has implemented some major cost cutting initiatives and operational changes in the past 12 months, resulting in the carrier reporting operating profits for the past six months (Nov-2008 to Apr-2009). 

President and CEO, Sean Menke, previously stated the LCC has driven its operating costs to “among the lowest in the industry, giving us the cost structure needed to produce operating profitably for the last six months in one of the most competitive markets in the country and during one the most difficult economies in nearly 80 years.”

Frontier Airlines Holdings monthly financial highlights

Currency: USD (mill)

May-08

Jun-08

Jul-08

Aug-08

Sep-08

Oct-08

Nov-08

Dec-08

Jan-09

Feb-09

Mar-09

Apr-09

Revenue

120.1

132.1

141.3

126.8

95.9

97.4

94.4

109.2

86.7

78.6

98.6

86.5

Operating costs

136.6

135.2

140.1

123.5

106.2

113.3

91.9

90.2

83.9

77.0

77.9

81.5

Operating profit

-16.5

-3.2

1.2

3.3

-10.4

-15.9

2.5

18.9

2.8

1.5

20.7

5.0

Net profit (loss)

-22.0

-8.8

-3.2

-5.6

-20.8

-20.5

2.9

18.8

-27.9

-3.2

-129.9

2.4

Frontier Airlines Holdings monthly cash and cash equivalent levels

Currency: USD

May-08

Jun-08

Jul-08

Aug-08

Sep-08

Oct-08

Nov-08

Dec-08

Jan-09

Feb-09

Mar-09

Apr-09

Cash & cash equivalents

110.1

59.3

64.5

74.2

72.7

52.1

53.4

69.1

61.4

60.2

71.8

70.0


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