Republic wins bid for Frontier, beats Southwest - East Valley Tribune: News

Republic wins bid for Frontier, beats Southwest

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Posted: Friday, August 14, 2009 10:46 am | Updated: 1:54 am, Sat Oct 8, 2011.

Republic Airways Holdings won the bankruptcy court auction for Frontier Airlines on Thursday, buying the Denver-based carrier for almost $108.8 million after Southwest Airlines Co.'s rival bid was rejected.

Southwest said its $170 million bid was deemed unacceptable because the carrier would not back down from a requirement that its pilots and Frontier's work out their integration before the deal would close.

Frontier said Republic made several improvements to its original June bid and has already received federal antitrust approval for the deal. A bankruptcy judge had approved Republic's earlier bid but left open the door for another bidder.

Frontier said the plan calls for it and regional unit Lynx "to maintain normal operations" as a stand-alone Republic subsidiary. Because of that, Denver travelers may see little change. But the deal is huge for Republic.

Until now, Indianapolis-based Republic has strictly been an operator of regional jets for big airlines like Delta, United, and US Airways. Now, between Frontier and its recent purchase of Milwaukee-based Midwest Airlines, it's jumping into the business of competing for passengers and setting its own schedules and prices.

That may not be so bad, said Jesup & Lamont Securities Co. airline analyst Helane Becker.

Republic is well-run, she said, and anyway the old regional airline model is suffering as big carriers squeeze their regional partners and cut capacity, including regional flights.

"The major airlines can just crush these guys like a bug" in the regional business, she said.

Republic's bid has it buying all of Frontier Holdings when that company emerges from Chapter 11 protection, which is expected later this year. It also agreed to waive any recovery on its $150 million general unsecured claim. The plan calls for current Frontier shareholders to receive nothing.

"Frontier has made impressive strides in returning to sustained profitability in a challenging and uncertain economic environment," Republic Chairman, President and CEO Bryan Bedford said in a written statement.

Republic had loaned money to Frontier during its Chapter 11 reorganization, which began in April 2008. In June it offered to buy Frontier out of bankruptcy.

Southwest's surprise bid, which eventually reached $170 million including repayment of Republic's loan, looked likely to win. Southwest had enough cash to simply write a check for Frontier, and it had the motive. Southwest has turned Denver into one of its key airports, but it faced strong competition both from Frontier and UAL Corp.'s United, which has a hub there. Buying Frontier would have eliminated one of those competitors outright.

In a written statement, Southwest Chairman, President and CEO Gary Kelly called the potential Frontier deal "a great opportunity that required us to act fast. A lot of people worked very hard with every intention of making this work."

But in making its bid Southwest insisted that pilots agree first on how they would integrate their so-called seniority list, the ranking that determines pilot scheduling and layoff order.

The same issue delayed Delta Air Lines Inc.'s purchase of Northwest last year, and it has held up the integration of US Airways Group Inc., which was purchased out of bankruptcy protection in 2005 by America West but still doesn't have a merged pilot workforce.

Negotiations between Southwest and Frontier pilots took place by video-conference on Wednesday, according Carl Kuwitzky, president of the Southwest Airlines Pilots' Association. They broke off around midnight. Kuwitzky said the Southwest pilots wanted the Frontier aviators put at the bottom of the seniority list. For pilots in an airline merger, that's considered the worst possible outcome.

"Seniority is all-important. Seniority is life," Frontier Airline Pilots Association President John Stemmler said on Thursday night after Republic won the bidding.

"I'm pleased that the process worked the way it did. I think both of the options had their advantages for the pilot group," he said. "The Republic deal allows for our entire active pilot group to remain employed, and that's a good thing."

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