17 August 2009

Republic Wins Bid for Frontier, Beating Southwest

August 14, 2009, 5:54 am — Updated: 3:28 pm -->
Republic Airways won the bankruptcy court auction for Frontier Airlines on Thursday, buying the Denver-based carrier for almost $108.8 million after Southwest Airlines’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 a Jesup & Lamont Securities Company 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’s chairman, president and chief executive officer, 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 crucial airports, but it faced strong competition both from Frontier and UAL’sUnited, which has a hub there. Buying Frontier would have eliminated one of those competitors outright.

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