Frontier Airlines’ ongoing dispute with a lessor of 11% of its fleet could quickly become problematic for Southwest and United and their passengers.
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Frontier’s Ongoing Dispute With One Of Its Fleet Lessors
An ongoing dispute with the lessor of 14% of Frontier Airlines’ fleet wants to take the aircraft back from the Denver-based carrier. Wells Fargo and UMB have become custodians of AMCK during bankruptcy proceedings:
“The carrier has taken action against Wells Fargo Trust Company and UMB Bank as owner-trustees of AMCK Aviation, telling the US District Court (New York Southern District) that taking the 14 aircraft out of service would have a “devastating” impact on day-to-day services. Frontier Airlines operates 128 aircraft, all Airbus narrowbodies. If Frontier fails in its bid, it will lose almost 14% of its fleet. The matter is the latest instalment in a long running dispute between Frontier and AMCK, which Carlyle Aviation Partners acquired last year.” – CH Aviation
For what it’s worth, the 14% number has been cited by multiple sources but from my back of the napkin math, it would be closer to 11% of the fleet. I assume that some aircraft might not be utilized at all times in the event of mechanical trouble or for refurbishments, but 14/128 is still a significant volume of the fleet. The legal filing seems to name 15 aircraft but that too would be well short of 14% of a 128-aircraft fleet (11.7%.)
Frontier purchased the aircraft, then sold them to AMCK and leased them back for preferred accounting reasons (a somewhat common practice called “sale and leaseback”.) As such, AMCK or the holder of the assets of AMCK in this case own the aircraft that are painted in Frontier’s livery and operated by the carrier.
What’s peculiar is that by all accounts, the budget airline appears to be honoring its end of the agreement maintaining the aircraft and paying the lease. There’s clearly bad blood between the two, and perhaps owners and previous management felt they could get a better deal leasing to another carrier. It’s not clear in the documentation I could find.
Fallout Of The Issue
Regardless of the reason of the suit, Frontier has a risk of a substantial portion of its fleet with little ability to source aircraft elsewhere at comparable rates – the market is tight and the Airbus A320 order book is on a waitlist for several years. Ultra low cost carriers (ULCCs) like Frontier Airlines highly utilize its aircraft so missing 11% (or more) of its fleet would have a damaging affect on operations but not just for Frontier.
Denver Woes For Southwest And United
As was evident in the Southwest meltdown during the holidays last year, problems at one carrier spell problems for the rest. As flights cancelled and excessively delayed, competitor flights filled up. Given the generally high travel demand especially around that time of year, flights were already full. Those that couldn’t or wouldn’t reschedule their flights for days later when Southwest could accommodate them again.
Southwest’s size and consistent, nationwide footprint affects the overall market differently than would a reduction in Frontier’s size of 11-14%. However, specifically in Denver where Frontier operates a considerable number of flights (Las Vegas would be similarly affected), United and Southwest could see sold out and oversold flights absorbing Frontier flyers. While all airlines would see an increase in bookings, those two carriers operate hubs in the mile high city and those replacing nonstops would likely try them first.
Southwest and United flyers would pay dearly for last minute flights and compounding the matter with their own operational challenges (as any airline has) further knockdown effects would be felt on dependent aircraft and connecting passengers.
Reputational Damage to Lessor
Airlines might have a hard time trusting the former Carlyle Aviation Partners and whatever company that evolves into given that Frontier didn’t seem to violate the terms of the agreement. While the group may go by another name in the future, and its management team moved on to other companies, it would be difficult not to worry that other carriers may also risk their fleet by doing business with them.
Conclusion
Frontier Airlines is in a dispute with the former AMCK aircraft lessor which owns 15 of its 128 aircraft. The lessor is attempting to recall those aircraft and Frontier doesn’t have a suitable replacement. If the asset holders are successful, Frontier will have a serious operational challenge and that will spill to other carriers in key Frontier markets, namely Denver.
What do you think? Will Frontier win its lawsuit? If it doesn’t will Southwest, United, and Denver flyers more broadly be adversely affected?
When accounting games go wrong…
So then why is this just affecting Frontier airlines and not other airlines? There must be something else going on. If Frontier is paying on time, and maintaining the planes and following the contract and they still want to take the planes but only from Southwest, then we’re missing some info somewhere.
This is really poorly written.
Your title talks about how frontier’s woes could be southwest/ United’s woes, but you don’t even mention that in your conclusion. What do you mean that United/ southwest customers would pay “dearly” if Frontier’s planes are repossessed? Wouldn’t people already be booked? How will they pay “dearly”? Also, frontier is also very large in Philadelphia and Orlando these days. What about other passengers on other airlines in those cities?
Start over try again
What I definitely noticed during WN’s meltdown last December– first class upgrade inventory was nill on other airlines (during a time when travel was disproportionally skewed toward leisure travel, so typically an easier time for upgrades to clear) as they held those seats back for sale to people displaced by WN.
After a little digging, it appears this dispute has been in play for many months. Each is claiming the other caused the conflict which is typical legal jockeying. What’s difficult is these are A320 NEO jet with very efficient engines. Getting short term leases to replace any part of the disputed airframes will be expensive. If Frontier can hold off till after the summer crush, it will have some wiggle room.
As for Southwest, UA, or the other airlines, they can only absorb so much considering North America is at or near an all time passenger boarding max. There is very little slack in the system. The ones hurt are the Frontier PAX.
The only ones who benefit from these legal disputes are the lawyers in question and their billable hours considering judges are very hesitant to make any hasty decision.
@Paper Boarding Pass – I don’t disagree that the lawyers are making all the money here. But I would postulate that Southwest and United flyers will be hurt by a lack of Frontier flights for two reasons. 1) Even fuller flights mean higher ticket prices, fewer upgrade chances, etc. 2) Without the ULCC to hold those two honest, the rates would jump immediately even before seats start selling faster than normal. Others would see increases too, Delta to New York, American to Chicago, but less so than the routes where they all compete and need a ULCC to hold fares down. Omaha and Kansas City are both served by all three carriers from Denver and no one else. Travelers that needed to fly to either of those cities, for example, would have two majors to choose from with no pricing pressure and fewer available seats on the market. Those aren’t just Frontier flyers, those are last minute United business travelers too, or those with a death in the family, etc.
So why don’t you change the headline to say “Southwest, United’s customers’ problems” instead of insinuating that it is bad for the airlines themselves.
Seems like common sense for anyone with reading comprehension.