25 July 2008

Planes and Trains In Colorado


Colorado based Frontier Airlines will join Chrysler as another major financially distressed U.S. company which is going private in a buy out from a private equity firm. Frontier is currently under Chapter 11 bankruptcy protection.

The straw that broke that camel's back in that case was an unexpected move by FirstData corporation, Frontier's credit card processor, to demand that Frontier keep more collateral in its account in case of refund requests should the airline shut down. But, it Frontier endured a long slide of declining profitability.

Until recent times, the only way to finance large scale ventures was a public offering of securities or government financing. But, increasingly, private equity firms have managed to secure large pools of money from small numbers of high dollar investors. These firms can often avoid tax disadvantages associated with publicly held firms and also tout their greater management accountability to shareholders and longer term outlook as advantages.

The buyout of Frontier will involve a $75 million equity investment in exchange for 80% of the company's shares, which still seems like a steal. By comparison, the 224 unit luxury residential building going up in Denver's Golden Triangle neighborhood near by office at 816 Acoma Street, has a $53.3 million budget.


A preliminary Wyoming state report "estimates it will cost between $1 million and $1.5 million per mile to upgrade the 265 miles of rail between Casper and Fort Collins [for passenger rail]. . . . building a highway can cost millions of dollars per mile." The existing rail line that would have to be upgraded "is owned by BNSF Railway Co." These upgrades might not be sufficient to secure 90 mph service.

Passenger rail has a lot of promise in the I-25 corridor, but the Casper to Fort Collins segment isn't the obvious place to begin. Rail ridership is tied in part to population density along the rail corridor, and there is more density from Fort Collins to Colorado Spring than there is further north and south in that corridor.

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