Frontier files for bankruptcy protection

“They’re doing the same thing that I’m doing,” said Ray Neidl, an analyst at Calyon Securities who late last month expressed concern about Frontier’s projected cash position. Earlier this week, the carrier said it had no concerns about bankruptcy. Credit card processors constantly review the credit profiles of the companies they serve, Neidl said.

But negative news reports and analyst research notes can also undermine a credit card company’s confidence in an airline by contributing to fears that an airline’s failure is imminent, said Mike Boyd, president of the Boyd Group consultancy in Evergreen, Colo.

“It could happen to any airline,” Boyd said.

It’s not the first time credit card companies have imposed cash withholding requirements on airlines. Many did so in the months after the Sept. 11 terrorist attacks because of worries about the industry. Several airlines, in fact, declared bankruptcy in the years after the attacks, due to the downturn in business and by the recession earlier this decade. Strict cash withholding requirements were a factor in Delta Air Lines Inc.’s 2005 bankruptcy.

Now analysts believe most larger airlines have sufficient cash to weather the current economic downturn and spike in fuel prices. The six largest airlines — AMR Corp.’s American Airlines, Delta, UAL Corp.’s United Airlines, Northwest Airlines Corp., US Airways Group Inc. and Continental Airlines Inc. — have a combined $20 billion in cash on their balance sheets, Mann said. Their credit card processors won’t likely change withholding requirements unless there is a significant change in operating conditions.

It’s the smaller companies with less cash that are more at risk of facing new cash withholding rules, analysts say.

On Friday, Calyon’s Neidl dropped coverage of Mesa Air Group Inc., citing its small capitalization. Last week, Mesa said Delta planned to end a major contract-flying agreement and Mesa sued to keep the deal intact. Mesa has declined to comment on whether it faces bankruptcy.

Larger carriers canceled thousands of flights affecting more than a quarter of a million passengers this week to check electrical wiring in MD-80 aircraft. The inspections were required to comply with Federal Aviation Administration safety regulations.

American Airlines was the hardest hit with nearly 3,100 cancellations, including almost 600 on Friday. The airline said it will cancel an undetermined number of flights on Saturday, but expected to resume normal operations by Saturday night. The cancellations will cost American tens of millions of dollars, but Chief Executive Gerard Arpey said the carrier can withstand the losses.

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