In these dark times, as defaults continue to rise and liquidations soar, there are bright spots.
Take, for example, the bankruptcy sale of Frontier Airlines to fellow regional carrier Republic Airways. About 16 months after Frontier sought Chapter 11 protection, a period that saw the near collapse of the U.S. economy and a sharp drop in consumer spending, the airline is poised to fly out of Chapter 11 under the wing of a strong regional carrier with ambitious plans.
Conventional wisdom would have put long odds on Frontier’s chances. The perpetually plagued airline industry has seen more than its share of crash landings in recent years (ATA, Independence, MAXjet), and things only got worse after the U.S. economy took a nosedive last fall. But Denver-based Frontier managed to survive. Bankruptcy Beat recently chatted with Marshall Huebner, the Davis Polk & Wardwell attorney who piloted the carrier through its Chapter 11 case, about what it took to keep the airline flying.
Huebner, who also led Delta Air Lines through its bankruptcy case, says Frontier is a “remarkable success story, almost entirely because of its people.” Denver, he says, was determined to keep its local carrier alive.
“The loyalty of the Denver community to its hometown airline, coupled with the Frontier’s intense determination that it simply would not be vanquished, were both genuinely amazing to experience,” he says.
Huebner cites the airline’s successful “Send Flip to Mexico” ad campaign launched in 2006. The ads featured local “rallies” to send Flip the Dolphin, one of the animals that grace Frontier’s planes, to Mexico when the airline increased its service to the country. The ads (watch them on YouTube) were a huge hit. (You’ll recall that Frontier recently won an Emmy for its newest animal-themed ad-campaign, which trumpets the carrier’s refurbished fleet.)
“It may seem like a campy example, but it shows how Frontier deeply understands its community and its community in turn understands them,” Huebner says. “And that energy has really fueled them through some pretty trying circumstances.”
In spite of the community’s commitment to the airline and Frontier’s drive to stay in business, Huebner says he wasn’t always sure the carrier would make it. “There were periods, especially when we were looking for financing early in the case, when it was not clear that we were going to be able to pull this off,” he said. “The determination to avoid it was always there. Did we always have complete confidence that it was definitely going to reorganize? No. There were some reasonably tight times in the case.”
The turning point, he says, came after the airline secured bankruptcy financing. “I think that when we secured our first (debtor-in-possession) loan, and people stepped forward to lend us money despite the environment, that began the march upward,” he says.
Huebner believes Frontier is positioned for success with Republic’s backing. Republic won an auction for Frontier earlier this month, beating out the deep pockets of discount giant Southwest Airlines. Frontier’s executives got a hero’s welcome when they returned to Denver last week to a “water-cannon salute” and hundreds of cheering employees, according to Deal Journal.
“Frontier has proven its ability to compete successfully against two of the biggest airlines in the United States from a position of great weakness, with all the cost and baggage of Chapter 11,” he said. “Frontier’s going to come out of bankruptcy having addressed its balance sheet, and I think it has every reason to believe that, no longer hampered by Chapter 11 and with the support and balance sheet of Republic behind it, it’s going to do extraordinary things.”