ATW Daily News

Southwest bids more than $170 million for Frontier

Tuesday August 11, 2009

Southwest Airlines yesterday confirmed its submission of a binding cash offer worth more than $170 million to acquire Denver rival Frontier Airlines, which now will be sold at auction because Republic Airways Holdings also has placed a bid.

When announcing its nonbinding interest in late July, SWA said its offer would be worth at least $113.6 million, eclipsing Republic's US Bankruptcy Court-approved proposal of $108.8 million (ATWOnline, July 31).

Explaining the difference in value, SWA Executive VP Strategy and Planning Bob Jordan said, "Our submission about 10 days ago really wasn't a bid. It was just a placeholder to get us into the process. . .This is our bid." He made his comments during a conference call with reporters. The auction is expected to begin Aug. 13, Southwest said, and the winning bid remains subject to approval by both the court and the US Dept. of Justice.

SWA said its offer includes acquisition of "approximately" 80% of Frontier's 51 A320 family fleet--around 40 aircraft, according to Jordan--and the entirety of its Lynx Aviation subsidiary, which flies Q400s. SWA will transition out of the A320 family aircraft into 737s over a period of approximately 24 months.

SWA "intends to maintain all existing markets, as well as add new nonstop routes from Denver that are not served by either Southwest or Frontier today." However, Jordan noted that it has not decided whether it will continue to operate Lynx itself or "find someone else to operate it."

In discussing the difference in value between the Republic and SWA bids, Executive VP-Corporate Services and Corporate Secretary Ron Ricks, who also participated in the conference call, pointed out that among other things SWA is proposing a bigger payout to unsecured shareholders: 12 cents on the dollar versus the 8.7 cents offered by Republic. He also noted that Republic "is around 50% of the unsecured claims pool [by value]."

Explaining why SWA is bidding on Frontier, Jordan said, "Frontier is for sale in bankruptcy, so something is going to happen to Frontier over the course of this week and we want to be a part of that. Second, we want to grow. . .and this provides us a great way to grow in a city that is very important to us."

SWA currently operates 113 daily flights to 34 destinations from Denver, where it employs nearly 400. Chairman, President and CEO Gary Kelly said it is "the fastest-growing city in our history."

by Brian Straus

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