On deck for Frontier: Settle with First Data

By Chris Walsh, Rocky Mountain News (Contact)

Tuesday, April 15, 2008

The next several weeks will be crucial for Frontier Airlines, setting the tone for the rest of its bankruptcy restructuring, legal experts say.

The carrier initially will look to resolve a dispute with its credit-card processor, First Data, over the amount of money the company can withhold on Frontier's ticket sales.

"That's going to be played out very quickly," said Thomas J. Salerno, a bankruptcy lawyer in Phoenix. "This is not the sort of thing that you can sit on."

First Data processes most of the transactions that occur when consumers buy Frontier tickets for future travel using credit cards. It then forwards that money to the airline, keeping a portion in case Frontier can't operate those flights for some reason.

Greenwood Village-based First Data, concerned with Frontier's financial health, wants a bigger cash buffer should Frontier shut down. But Frontier says that would have a detrimental effect on the company financially, so it filed for bankruptcy to halt any immediate action by First Data.

Denver-based Frontier said last week that it could sue over the issue, if necessary. A quick, positive resolution in Frontier's favor would allow it to move on to other issues.

"There's going to be an extremely pitched battle fought within the next week or so," said Anthony Sabino, a law professor in the Tobin College of Business at St. John's University in New York. "If First Data gets the upper hand, that will put a crimp in Frontier's plan going forward. However, if Frontier gets the upper hand, they can move right along."

The carrier has said it will use the protections offered by the bankruptcy court to explore ways to restructure its business. It declined to specify what that might include, but it likely will look at ways to reduce costs and rework unfavorable leases and contracts.

Frontier expects its bankruptcy to last from nine to 18 months.

Aside from the issue with First Data, Frontier will spend a lot of time preparing reams of information for the bankruptcy court. The key is to stabilize its business, Salerno said.

Frontier has made the necessary progress on that end, receiving court approval to continue flying and paying its employees.

"The first 30 days of an airline bankruptcy are going to be, obviously, very, very busy," Salerno said. "They're really going to need to get some stability from a public perception standpoint."

In coming months, the carrier will look to:

* Secure debtor-in-possession financing.

* Fill out a detailed list of assets and liabilities, called "schedules," by June 24.

* Release detailed financial information for recent months.

* File a document that discloses amounts it paid out immediately before it filed for bankruptcy. This is used to make sure the company didn't try to hide assets or divert money to keep it out of the hands of creditors.

* Hold a creditors' meeting, at which the company appears and the bankruptcy trustee asks questions about the company's schedules. Creditors can then file a "proof of claim," which is the formal document used to establish that they are owed money.

walshc@RockyMountainNews.com or 303-954-2744 Staff writer David Milstead contributed to this report.