April 11 (Bloomberg) -- Frontier Airlines Holdings Inc., the U.S. discount carrier that serves 70 destinations from Denver, filed for bankruptcy, becoming the fourth U.S. airline to seek court protection in less than a month.

Frontier took the step after its credit-card processor, First Data Corp., began withholding proceeds from ticket sales, the Denver-based carrier said in a statement today. Frontier pledged to continue flying and keep paying workers while it seeks additional financing.

Frontier's troubles add to the turbulence in the U.S. airline industry. AMR Corp.'s American Airlines canceled more than 3,000 flights this week to inspect and repair wiring on its Boeing Co. MD-80 jets. U.S. carriers will post combined losses of $1.2 billion in the first quarter, according to Ray Neidl, a Calyon Securities Inc. analyst in New York.

``We do not see a future for Frontier as it faces tough competition in Denver from United on the network side, and Southwest on the low-cost side,'' Neidl said in a research note.

Frontier has cut staff and sold off aircraft as it fights for market share with Southwest Airlines Co., the largest discount airline, and Ted, the low-fare unit of UAL Corp.'s United Airlines, while its costs balloon from record fuel prices.

The cost of jet fuel, soaring 78 percent in the past year, and a slowing economy were blamed for the bankruptcy filings of Skybus Airlines Inc., Aloha Airgroup Inc. and ATA Airlines Inc., and the shutdown of Champion Air in the past three weeks.

`Different Reasons'

``We filed for very different reasons than those of other recent carriers,'' Frontier Chief Executive Officer Sean Menke, who took over the job seven months ago, said in the statement. ``We believe that we currently have adequate cash on hand to meet our operating needs while we take steps to further strengthen our company.''

Frontier, Denver's second-largest carrier, plunged 69 percent to 48 cents at 4:30 p.m. New York time in Nasdaq Stock Market trading, after tumbling 12 percent yesterday.

First Data told the airline April 8 it would retain half the proceeds of bankcard sales and increase collateral to $130 million from $54.5 million, Frontier Vice President Edward Christie said in a statement filed with the U.S. Bankruptcy Court in Manhattan.

Greenwood Village, Colorado-based First Data, the biggest credit card payment processor, was bought by leveraged buyout firm Kohlberg Kravis Roberts & Co. last year.

Equity Infusion

Frontier is exploring options including an equity infusion, Christie said. Frontier is considering securing the financing with the equity in its aircraft, which Christie estimated at ``in excess of $150 million.''

``Frontier is not liquidating, Frontier is not shutting down,'' said Delta lawyer Marshall Huebner of New York's Davis Polk & Wardwell, while commenting on other recent airline bankruptcies at a court hearing today.

Frontier's mainline operation has 62 Airbus SAS A320 series jetliners and its Lynx Aviation unit has 10 Bombardier Inc. regional turboprops, the company said. The company has debt of $500 million to $1 billion and about the same in assets, according to documents filed in bankruptcy court.

Frontier's filing will block efforts to collect debts, including the proceeds that First Data is seeking to retain. If First Data's hold went unchecked, ``it would have put severe restraints on Frontier's liquidity and would have made it impossible for us to continue normal operations,'' Menke said.

Creditors

The 30 largest creditors without collateral backing their claims are owed a total of $109 million, court papers show. Wells Fargo & Co., the fifth-largest U.S. bank by assets, is listed as the largest unsecured creditor. It's owed $93 million. The largest secured claimholder, owed $84 million, is Q Aviation of Fort Worth, Texas.

Honolulu-based Aloha said it was shutting down March 30 after failing to find a buyer or financing to keep flying. The carrier applied for Chapter 11 protection on March 20, blaming a price war with Mesa Air Group Inc.'s Go! inter-island carrier.

ATA, based in Indianapolis, filed for court protection April 2 and ceased operations, citing fuel prices and the loss of a contract for military charter flights. Skybus Airlines Inc., a low-fare carrier started less than a year ago, filed for bankruptcy April 5.

Champion Air, a Bloomington, Minnesota-based carrier that offered charter flights to sports teams, cited high fuel bills and the slowing economy when it said this week it will stop flying May 31.

Fuel Suppliers

In its court filings, Frontier indicated that fuel suppliers were tightening their credit terms, cutting into the company's liquidity. Frontier's average fuel cost rose from $2.12 a gallon for the quarter ended Dec. 31, 2006, to $3.39 a gallon as of April 9.

The company won approval from U.S. Bankruptcy Court Judge Robert Drain to continue fuel supply agreements. Frontier expects to make advance payments of $54.5 million for May, according to court papers.

Frontier serves 62 cities in 36 U.S. states, plus six in Mexico, one in Canada and one in Costa Rica. It employs about 6,000 people. Subsidiaries Frontier Airlines and Lynx Aviation also sought bankruptcy.

Frontier's $92 million of 5 percent convertible bonds due in 2025 traded at 28 cents on the dollar today, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. Before today, the securities last traded in February at about 60 cents, Trace data show.

The case is: Frontier Airlines Inc., 08-11297, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporters on this story: Dawn McCarty in Wilmington, Delaware, at dmccarty@bloomberg.net; Hugo Miller in Toronto at hugomiller@bloomberg.net

Last Updated: April 11, 2008 19:46 EDT