Originally Posted by
Beckles
Maybe I have a simplistic view of the business world, but any company that is currently in bankruptcy is not "successful" in my opinion.
Bankruptcy is not an indicator of a failed business model. It could be, but quite often it isn't. It's often an indicator of circumstances that arose that are not related to the business model.
Had Frontier's credit card processor not changed the terms on them, Frontier might be fine today. The thing is some banker, in some office in some city somewhere decided they wanted to change their risk level on that industry (or that company) and changed the holdback on them. This impacted Frontier's cash flow to the point where they could not pay their bills, hence the bankruptcy.
Mind you, the credit card processor really isn't interested in the health of the company. They probably do billions of transactions for all their merchant accounts, and Frontier is just a tiny sliver of the pie. If they go away, they don't care. What are they worried about? Not their risk, but their
perceived risk by outsiders. Or, maybe Frontier was one of this bank's biggest customers, and the bank actually looks better if F9 fails, that way they can show their shareholders that they're hardly exposed to the volatile airline industry, and their other major accounts are in solid sectors.
Who knows the rationale, but clearly the bank knew Frontier's financials, and they knew that this move would likely push them into bankruptcy. They did this on purpose. Remember the bank is only looking after
their share price.
Some VP or executive somewhere probably said the bank needs to reduce our percentage of airline transactions because that sector is not going to perform well over the next year or two.
So yeah, it really has nothing to do with the merits of the company. A lot of these financial arrangements can be altered, and the banks have a lot of control over a company's fate. And for reasons outside the banker's control, the bank may actually want your company to fail, so they may take steps towards that.
Originally Posted by
tusphotog
If FRNT/F9 was doing so well, how come they can't emerge from BK on their own?
Financing and the legal structure in the U.S.
The only people with enough money who are willing to buy it (Republic, WN), are not willing to pick up debt, so they're buying the assets of F9 because it's less costly that way.
That said, whomever wins Frontier will likely assume a chunk of the debt to keep it going, but likely not all of it.