Indigo to Buy Republic Airways’ Frontier for $36 Million
Indigo Partners LLC, the private-equity firm led by veteran airline executive William Franke, agreed to buy Republic Airways Holdings Inc. (RJET)’s Frontier Airlines for $36 million in cash.
The total value of the transaction is $145 million including debt, the companies said today in a statement. Republic, which operates regional flights for larger carriers, decided to shed Frontier in November 2011, two years after buying the company to bring it out of bankruptcy.
“This transaction is a direct result of Frontier’s successful restructuring, continued cost reduction efforts and laser focus on revenue generation,” Bryan Bedford, chief executive officer of Indianapolis-based Republic, said today.
Republic earlier began work to transform Frontier into an ultra-low cost carrier, which offers low base fares and adds fees for anything else. That work will continue under Franke, who was named chairman of Spirit (SAVE) Airlines Inc. when Indigo gained majority control of that ultra-low cost carrier in 2006.
“As airline fares continue to move up, passengers need affordable travel alternatives,” Franke said today in the statement. “Our goal will be to meet that need in more markets as we invest in the airline to grow its footprint.”
The sale will end Republic CEO Bedford’s bid to operate commuter carriers alongside an airline that competed on main jet routes. Bedford returned Frontier to profit in 2012 after reducing annual operating costs more than $120 million by cutting jobs, dropping some markets and modifying leases, vendor contracts and labor agreements.
Republic rose 5.4 percent to $12.54 at the close in New York. The shares have more than doubled this year.
The sale is contingent on reaching agreements by Oct. 31 with the union representing Frontier flight attendants and a former union for the airline’s pilots. The Frontier Airline Pilots Association agreed to cuts in pay and benefits in exchange for an equity stake in the airline or a cash settlement. The union later was replaced by the Teamsters.
The transaction is expected to be completed in December, the companies said.
Republic will also hand over its rights relating to an Airbus SAS A320neo order in exchange for reimbursement of pre-delivery deposits totaling $32 million, according to the statement.
Franke resigned as chairman of Spirit in July and sold Indigo’s 17 percent stake in the Miramar, Florida-based carrier.
Republic bought Frontier in October 2009 for $108.8 million and an agreement not to pursue a $150 million unsecured bankruptcy claim. Southwest Airlines Co. (LUV) withdrew its $170 million Frontier bid after its pilots couldn’t agree with their counterparts at the smaller carrier on how to mesh seniority lists.
Frontier filed for bankruptcy protection in April 2008. The airline’s main base of operations is Denver, where it carries about 19 percent of passengers, according to the U.S. Transportation Department. Southwest and United Continental Holdings Inc. each control about 25 percent of that market.
Republic ferries passengers to hub airports for AMR Corp. (AAMRQ)’s American Airlines, United, Delta Air Lines Inc. and US Airways Group Inc. In addition to Frontier, it owns Chautauqua Airlines, Republic Airlines and Shuttle America.
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