Western Pacific Airlines Files for Bankruptcy
Western Pacific Airlines Inc. on Monday said it filed for Bankruptcy Court protection from creditors, a week after scrapping plans to buy Frontier Airlines Inc. to compete better against United Airlines in Colorado.
Western Pacific, a 2-year-old carrier based in Colorado Springs, Colo., also said it was talking to an investor about providing debtor-in-possession financing, a kind of funding for companies in Bankruptcy Court proceedings. It didn’t name the investor.
Western Pacific lost 64% of its market value Monday after its shares fell $1.81 to $1 in Nasdaq trading. Before trading was halted pending the airline’s announcement, the shares touched 75 cents.
Speculation about Western Pacific’s trip to Bankruptcy Court was raised when four of the company’s seven directors quit abruptly on Friday, citing a possible conflict of interest. The four directors were affiliated with Western’s two biggest shareholders, who also have provided loans to the airline. Lenders are treated as creditors in the event a company seeks to reorganize under Bankruptcy Court supervision.
“The fact that they’ve stepped off the board means they consider themselves creditors,” said Michael Shonstrom, an analyst at Neidiger, Tucker Bruner Inc. in Denver.
On Monday, Western suggested it may sue the directors because they had a responsibility to Western Pacific’s shareholders and employees as well as to its creditors. It said it asked its attorneys to review the resignations and advise the company of its legal rights.
The airline hasn’t been profitable since it began operations in April 1995, with two jet aircraft serving five cities. As costs rose from expanding its operations to its current fleet of 19 aircraft serving 18 cities from Colorado Springs and Denver, founder and Chairman Edward Beauvais was ousted late last year as president and chief executive. Beauvais also had helped start America West Airlines Inc.
The company’s major shareholders, Hunt Petroleum of Texas Inc., with 12% of the shares outstanding, and Oklahoma City businessman Edward Gaylord, who controls about 30%, brought in a new management team, headed by President and Chief Executive Robert Peiser.
The company’s new managers hoped the takeover of Denver-based Frontier, another unprofitable, low-cost carrier, would create a more formidable competitor at Denver International Airport. UAL Corp.’s United dominates Denver with about 67% of flights.
The stock-swap transaction to acquire Frontier had been valued at $33.6 million when it was announced June 30. In the ensuing three months, both companies’ shares lost about a third of their value.
Western Pacific filed the Chapter 11 petition with the U.S. Bankruptcy Court in Denver. It didn’t say how much it owed creditors. At the end of the second quarter, it listed liabilities of $73 million and long-term and short-term debt of $24.8 million. Since then, it has borrowed $10 million more, and owes Denver International Airport more than $4 million in fees for its operations since it moved most of its flights there from Colorado Springs in June.
