Spirit Falls With Indigo Stake Sale Seen as Step to Frontier

Spirit Airlines Inc. fell the most in 10 months as investor Indigo Partners LLC prepares to sell its holdings in a move that may be a step by the private-equity firm to bid for Frontier Airlines.

Spirit declined 8.3 percent to $32.45 at the close in New York, the biggest one-day drop since September, after Indigo filed to liquidate 12.1 million shares, or a 17 percent stake.

Indigo unloading its shares means managing partner William Franke will step down as non-executive chairman of the discount airline. The private-equity firm is in exclusive talks with Frontier parent Republic Airways Holdings Inc., Dow Jones reported today, citing an unidentified person familiar with the situation.

“If Indigo were to acquire Frontier, it would be negative for Spirit because Bill Franke and his team at Indigo have intimate hands-on knowledge of the Spirit business model and its market potential,” James Parker, an analyst at Raymond James & Associates Inc., wrote in a note to investors today.

Deal Imminent

Franke decided to resign as Spirit’s chairman and sell Indigo’s shares in the Miramar, Florida-based carrier because he was concerned he couldn’t be a director of two competitors at the same time, Dow Jones reported.

Prior to Spirit, Franke served as chairman and CEO of America West Airlines Inc., the airline that combined with US Airways Group Inc. in 2005 and kept that carrier’s name. John Wilson, a principal at Indigo and former executive at America West, will also step down from Spirit’s board after the sale is completed.

Peter Kowalchuk, a spokesman for Indianapolis-based Republic, declined to comment. Representatives from Phoenix-based Indigo didn’t immediately respond to calls for comment.

Republic has had Frontier on the market for the past 18 months and a “deal could happen in the next several weeks,” Helane Becker, an analyst at Cowen & Co., said in a note today. Becker, who is based in New York, rates Spirit’s shares outperform.

If Indigo purchases Frontier, it would “raise the potential for a successful competitor for Spirit,” said Parker, who rates the shares outperform.

‘Transforming Frontier’

Republic fell 0.4 percent to $13.30 at the close in New York and has more than doubled this year.

On a conference call this month, executives at Republic said that airline had entered into an exclusive, non-binding agreement with a third-party buyer for Frontier, which operates a fleet of about 50 planes in the Airbus SAS 320 family.

Republic Chief Executive Officer Bryan Bedford has said he wants to transform Frontier into a low-cost, high-fee carrier like Spirit. In May, Frontier announced plans to start charging customers for carry-on baggage and refreshments.

“We are continued in our determined focus on transforming Frontier into an ultra-low-cost carrier,” Daniel Shurz, a senior vice president at Frontier, said during the Republic conference call this month.

Bedford also said Republic wouldn’t continue to invest in turning Frontier into a low-cost carrier. Instead, the company would allow an investor to decide whether to pursue the strategy, he said on the call.

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