Frontier Airlines looking for investors
March 13, 2009 ·
This is a tough time to be looking for investors in an airline, but these days that’s Sean Menke’s job.
Menke is chief executive of Frontier Airlines, which has been reorganizing under bankruptcy protection since April 11. For the past few weeks Menke and Chief Financial Officer Ed Christie have been visiting dozens of potential investors, looking both for an extended bankruptcy loan and a financier to take them out of bankruptcy. They got the first, but still need the second.
“We believe that if we can find the appropriate plan sponsor that this organization could be out mid- to late summer, and that’s our focus right now,” Menke said in an interview on Thursday.
The new $40 million debtor-in-possession loan from Republic Airways announced last week runs through Dec. 1, replacing a loan that would have been due April 1.
Frontier’s unsecured creditors include Republic and act as a sort of de-facto board of directors in bankruptcy, and they support the new loan with the Dec. 1 deadline.
“It tells you that they’re comfortable going out that far,” Menke said. He called the Dec. 1 date “validation of the time that they’re giving the organization.”
Menke said some of the potential investors had little interest in financing Frontier’s exit from bankruptcy, but others asked for more information and appeared to be giving it serious thought. He said he has meetings with more potential investors scheduled in coming weeks.
“We could continue to go for a while where we are, but we do need to find that plan sponsor, that is something this organization needs to do.”
Frontier’s current bankruptcy court deadline to submit a reorganization plan is June 4; after that, creditors can step in and propose their own plan. That deadline has been extended before and could be again.
Frontier agreed to a $150 million bankruptcy claim by Republic in exchange for the loan. Bankruptcy claims often settle for a fraction of the face value.
Republic declined to say whether it is considering investing in Frontier to take it out of bankruptcy. Spokesman Carlo Bertolini said by e-mail that the debtor-in-possession loan to Frontier “is fully secured and will generate a solid return on our investment.”
Frontier was pushed into bankruptcy protection after its credit card processor moved to start withholding significant proceeds from the sale of Frontier tickets, threatening a cash crunch.
“It’s the worst thing that’s ever happened to me,” Menke said. “It’s not something you aspire to do.”
And while bigger airlines needed bankruptcy protection to wring deep pay cuts from unionized workers and reject airplane and airport leases that they thought were too expensive, Frontier has run a relatively lean operation all along. It did shrink some over the summer, and sold four planes in the final quarter of 2008. It reported a $5.6 million operating profit for the quarter that ended Dec. 31.
Frontier’s routes look like a spider, with the body at its home base in Denver and legs in most of the big cities around the U.S. Some have worried that it would be caught in the fare shoot-out in its home city between discounter Southwest Airlines Co. and UAL Corp.’s United Airlines, which has a hub there.
But airline consultant Michael Boyd of Evergreen, Colo., said Frontier has held up fine.
“He has a story to tell,” Boyd said of Menke’s efforts to find an investor.
“It’s going to be hard, no question,” he said. “It’s an airline. But if you’re going to try to raise money for any airline, probably Frontier would be the one I’d pick.”