SkyHigh

UPDATE 1-Frontier Air could face serious cash crunch
Tue Nov 29, 2005 01:36 PM ET
(Updates with liquidity warning)
WASHINGTON, Nov 29 (Reuters) - Frontier Airlines Inc. (FRNT.O: Quote, Profile, Research) , gearing up for stiffer competition at its Denver hub from low-cost power Southwest Airlines (LUV.N: Quote, Profile, Research) , on Tuesday warned investors that it faces a potential cash crunch that could jeopardize its business.

The company, whose shares fell 7 percent, said it may not be able to secure financing for new aircraft, meet debt payments or follow through with expansion plans.

"Our business, financial condition or results of operations could be materially adversely affected by any of these risks," the airline said in a U.S. Securities and Exchange Commission filing.

Frontier said it is trying to acquire financing for four of 11 Airbus A319s it has committed to purchase, but could not guarantee that it will be successful. The airline also plans to lease up to four A319s.

The company said an inability to acquire the planes could have a material adverse effect on cash balances or delay aircraft deliveries that would impair its long-term growth strategy.

Frontier also pointed out the potential impact of competing in Denver with a restructured United Airlines (UALAQ.OB: Quote, Profile, Research) and Southwest, which will start service there in January with flights to Chicago Midway, Las Vegas and Phoenix.

Frontier also warned about possible low-cost fare wars, predatory pricing and competitors placing additional planes on selected routes to drive up capacity.

"The future activities of United, Southwest, and other carriers may have a material effect on our revenues and results of operations," Frontier said.

Other low-cost competitors JetBlue Airways (JBLU.O: Quote, Profile, Research) , AirTran Airways (AAI.N: Quote, Profile, Research) and Alaska Airlines (ALK.N: Quote, Profile, Research) have also launched service from Denver within the past three years.

Frontier said on Tuesday it would sell $80 million of convertible debentures due 2025 to ease its debt load. Total debt was $346.5 million on Sept. 30.

The company's shares were down 64 cents at $8.25 in afternoon Nasdaq trade.