Denver-based low-cost carrier Frontier Airlines, which filed for Chapter 11 bankruptcy protection on April 10, has unveiled a debtor-in-possession (DIP) agreement that will raise $75 million for the troubled airline.

The deal also allows the financier, Washington D.C.-based investment firm Perseus, to purchase 79.9% of a reorganized Frontier for $100 million. Both the DIP and ownership agreements are subject to bankruptcy court approval.

Frontier's July 25 announcement comes one day after Southwest Airlines confirmed a further expansion of its Denver operations to 115 daily departures by November, and just days after United Airlines said its Denver hub capacity will be reduced by 16% this winter.

Perseus, which was formed in 1995, currently manages seven investment funds worth $2 billion, the company says on its web site. The Frontier investment appears to be the firm's first in the airline industry.

"Today's announcement is a major boost to Frontier and builds momentum toward its emergence from bankruptcy as a viable enterprise," says Frontier President and CEO Sean Menke in the July 25 press release. "The $75 million commitment in DIP financing from Perseus is a significant vote of confidence in the employees of Frontier, our product and business plan.

"Despite the current challenges facing the airline industry, these transactions help point the way towards Frontier's emergence from bankruptcy as a competitive, sustainable airline."

Adds Perseus Senior Managing Director Brian Leitch, "We are enthusiastic about the opportunity to invest in the future of Frontier.

"We are impressed by Frontier's excellent employees and friendly customer service, as well as the numerous product characteristics that distinguish Frontier from its competitors. Industry data supports our conclusion that when given a choice, the majority of coach travelers prefer Frontier over the competitive options. The airline industry is in a state of transition and some degree of turmoil.

"Although Frontier has been buffeted by recent fuel price increases and certain other issues, we believe that Frontier has proven that it deserves a chance to succeed in this challenging market, and we are proud to help it do so."

Perseus has named its acquisition unit Go Flip Go, in homage to one of Frontier's animal tail mascots.

If approved by the U.S. Bankruptcy Court for the Southern District of New York, which oversaw the reorganizations of both Delta Air Lines and Northwest Airlines, Perseus will provide its DIP in two installments.

"Frontier's negotiations with partners to improve liquidity, reduce expenses, and preserve cash, is expected to provide sufficient working capital for the company's operations," says the investment firm.

Photo: Airbus