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Frontier Halts Flights, Cites Large Losses : Bankruptcy Filing Expected if Airline Is Not Sold to United

August 25, 1986|BILL SING | Times Staff Writer

Frontier Airlines, stung by intense competition and mounting losses, suspended all flights Sunday and is expected to file today for reorganization under the federal bankruptcy laws if a crucial labor agreement is not reached involving United Airlines' plan to buy Frontier.

The action by Denver-based Frontier resulted in the idling of its 4,700 employees and left as many as 17,000 passengers at least temporarily stranded in 55 cities and airports, including Los Angeles and Orange counties. However, at least two other carriers said they would honor Frontier tickets, at least on a standby basis.

Frontier, the nation's 15th-largest carrier, thus becomes the latest in a series of airline shutdowns since airline deregulation in 1978 triggered dramatic fare wars and cost cutting.

Labor Agreement Snags

Frontier's parent company, Newark, N.J.-based People Express Inc., said it shut Frontier down because the Denver carrier ran out of cash and because a plan to sell Frontier to United for $146 million has run into snags involving new labor agreements that United would offer for Frontier's unionized pilots and other workers.

"We deeply regret that this step had to be taken but we were left with no choice," People Express said in a statement. "Frontier is out of funds, and in the absence of assurance that the sale to United will take place, People Express is unwilling to commit any more of its funds to Frontier."

The airline apparently would have been unable to meet its payroll and other expenses this week, sources close to the airline said.

'Could Not Be Avoided'

The shutdown of Frontier "could not be avoided, given the current failure of United and its pilots to reach an agreement allowing for the sale of Frontier to United," said Donald Burr, chairman and chief executive of People Express.

However, spokesmen for Frontier's pilots and flight attendants were hopeful that an 11th-hour agreement could be reached early today between United and its pilots union--which is negotiating on behalf of Frontier's pilots--to forestall a bankruptcy filing. Negotiations between United and the pilots union continued late Sunday in Chicago.

"We hope the brinkmanship will stop and we'll get on with negotiations," said Skip Taylor, secretary-treasurer for the unit of the Air Line Pilots Assn. union representing Frontier's pilots.

People Express said, however, that if no agreement with the pilots could be reached, Frontier intends to file a petition for relief under the U.S. Bankruptcy Code today "and is not planning to resume operations thereafter."

People Express officials did not say what type of bankruptcy filing they would make, but most union sources and others assumed they would file under Chapter 11 of the bankruptcy code, which would make it easier than some other types of bankruptcy filings for Frontier to continue seeking an agreement to be sold to United.

Airline analysts suggested that the shutdown could force both sides to reach a settlement. "By stopping operations, People Express is forcing the parties to focus on the real issues," David Sylvester, an analyst for Montgomery Securities in San Francisco, told the Denver Post on Sunday.

Frontier's problems stem largely from intense competition at its hub in Denver with Continental Airlines and United. Before airline deregulation, Frontier was a thriving regional carrier but in recent months has found itself at a disadvantage against Continental, which has lower labor costs, and United, which is much larger and has more financial resources.

Purchased in 1985

Frontier was purchased by People Express in late 1985 for $300 million, but in recent months People Express also has encountered increasing financial problems, which led to its seeking a buyer for Frontier. Frontier lost $59.8 million in the first six months of this year.

Last month People Express agreed to sell Frontier to United for $146 million, but the completion of that deal hinges on United reaching labor agreements involving Frontier's five unions, and on approval by the Department of Transportation. People Express has already sold some of Frontier's assets to United for about $47 million.

Monthlong negotiations between United and the pilots union have stalled over how long it would take to lift Frontier pilots' wages to the same level as United's pilots, who are paid about 70% more. United offered to merge the scales in five years, but the pilots demanded parity in 18 months.

Wages Compared

A 737 captain at Frontier makes $68,000 a year compared to $115,000 at United, United reported.

United spokesman Charles Novak said in Chicago that a bankruptcy filing by Frontier will make it difficult to work out a takeover. "The situation will be totally different if they go into bankruptcy," Novak said. The price and other terms of the deal would have to be "re-evaluated," he said.

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