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| Friday, November 20, 2009 |
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ANALYSIS
March 2, 2009
Sagging Index no longer reflects what’s going on in the market, some say, Replacements? Google it, to start.
March 2, 2009
Downward price spiral will actually boost the cost of capital for most companies. CFOS, take note.
March 2, 2009
The latest bailout at AIG could be a preview of how the president will deal with Wall Street.
March 2, 2009
No corporate defaults. Big debt offerings. Percolating CP issuance. Things may be looking up in the capital markets.
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April 11, 2008 3:02 PM ET
It hasn’t exactly been the friendly skies for business travelers of late. Concerns about the safety of MD-80s led to the cancellation of thousands of flights by several airlines, including American and United. And three regional carriers recently filed for bankruptcy protection, shutting down operations in the process. Now business fliers west of the Mississippi face yet more uncertainty: Frontier Airlines announced today that it too is filing for Chapter 11 bankruptcy protection. In making the announcement, Frontier CEO Sean Menke stated that the Denver-based airline “filed for very different reasons than those of other recent carriers.” Indeed, Mr. Menke blamed the airline’s descent into bankruptcy on an “unexpected attempt” by credit card processor First Data “to start withholding significant proceeds received from the sale of Frontier tickets.” Generally, credit card vendors turn over revenue to airlines from bookings in a matter of days. But in some cases, the companies hold on to a percentage of ticket receipts until customers actually take their flights. These so-called holdback policies vary, usually depending on the financial stability of an airline. Mr. Menke claims First Data’s unexpected decision to increase its holdback on Frontier threatened the airline’s ability to keep flying. The move “would have represented a material change to our cash forecasts and business plan,” he said. “Unchecked, it would have put severe restraints on Frontier’s liquidity and would have made it impossible for us to continue normal operations.” It was unclear what prompted the credit card processor’s decision to shift gears on Frontier at this time, but an e-mailed statement from First Data’s director of communications, Elizabeth Grice, hinted that higher levels of credit risk within the airline industry might be the culprit. The statement blamed current economic conditions for Frontier’s bankruptcy, noting that “the terms of our agreement with Frontier Airlines are not unique; they are considered standard industry practice, and terms originally agreed upon by Frontier. We have been in ongoing dialogue with Frontier Airlines for several months and will continue to work with them in as constructive a manner as possible.” Clearly, trying to collect additional revenue from Frontier’s receipts while the economy is struggling wasn’t very constructive, so the carrier’s response seems pretty obvious. Once a company enters Chapter 11, credit card vendors are prohibited from raising holdback percentages. “We felt that Frontier would be able to withstand the challenges confronting the U.S. airline industry, which include unprecedented and significant increases in the cost of jet fuel and the impact of the credit crisis in the financial markets, without seeking bankruptcy protection,” Mr. Menke said. Frontier said it will continue normal business operations today and throughout the reorganization process. “By filing for Chapter 11, we will now have the time and legal protection necessary to obtain additional financing and enhance our liquidity,” Mr. Menke said. “We believe that we currently have adequate cash on hand to meet our operating needs while we take steps to further strengthen the company.” Considering the turbulence in the airline industry, Frontier may not be the last carrier to file for bankruptcy this year. In an analyst note, Morningstar’s Brian Nelson said “rising jet fuel prices and slowing passenger demand have proved to be a lethal combination,” for the industry. ATA Airlines, Skybus Airlines and Aloha Airgroup all cited increasing jet fuel costs and the economic downturn as reasons for their bankruptcy filings this year. Mr. Nelson placed Frontier under review, warning that he expects “to reduce our fair-value estimate, probably to (or very close to) $0 per share.” It’s almost there already. Today’s announcement sent Frontier’s stock price into a tailspin, down 73%. As of late afternoon, shares of Frontier stock were trading at around 42 cents.
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