Aug. 13 (Bloomberg) -- Republic Airways Holdings Inc. won a bankruptcy court auction to buy Frontier Airlines Holdings Inc., bidding $108.8 million to beat Southwest Airlines Co.

Republic also agreed to waive any right to recovery on a $150 million pre-petition unsecured claim, the carrier said today in a statement. U.S. Bankruptcy Judge Robert Drain in New York and regulators have yet to review the sale. Southwest bid $170 million Aug. 10.

“I look forward to welcoming Frontier to our Republic family,” Bryan Bedford, Republic’s chief executive officer, said in the statement.

Based on passenger traffic, Indianapolis-based Republic was the 11th-largest U.S. carrier last year, while Denver-based Frontier was 13th and Dallas-based Southwest was fifth, according to data compiled by Bloomberg.

Republic operates commuter flights for larger carriers including Delta Air Lines Inc. and UAL Corp.’s United Airlines and has said it would operate Frontier as a subsidiary. Republic owns regional carriers Chautauqua Airlines, Shuttle America and Midwest Airlines, which it acquired July 31.

Southwest, the world’s biggest discount carrier, made a $113.6 million preliminary offer on July 30. It then increased its offer by about 50 percent Aug. 10.

Pilots Union

Southwest said today in a statement that its bid was deemed unacceptable because its pilots union and that of Frontier failed to reach an agreement on how they would work together, which had been a condition of its offer to buy Frontier.

“We said all along that we would only move forward on this deal if it proved to be the right decision for our employees and financially prudent for our company,” Southwest Chief Executive Officer Gary Kelly said in the statement. “We chose not to amend our bid to remove the labor requirement, a key reason our bid was not selected.”

Beth Harbin, a spokeswoman for Southwest, declined to comment beyond the statement. Southwest Airlines Pilots Association also declined to comment.

“In this case, common sense lost out to fear, uncertainty and doubt,” Robert Mann, an aviation consultant, said of the Frontier pilots’ failure to agree with their Southwest counterparts on an agreement to mesh seniority lists.

Southwest and Frontier pilots failed to agree to a deal by the deadline of midnight yesterday in New York.

Frontier filed for bankruptcy in April 2008 and agreed on June 22 to be acquired by Republic for $108.8 million, before Southwest’s higher offer.

The case is In re. Frontier Airline Holdings Inc., 08-11298, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporters on this story: Tiffany Kary in New York bankruptcy court at tkary@bloomberg.net; Mary Schlangenstein in Dallas at maryc.s@bloomberg.net.

Last Updated: August 13, 2009 21:42 EDT