Southwest Bid Sidetracked By Labor Issues

Frontier Airlines Holdings announced Thursday that Republic Airways Holdings, Inc. has been declared the winning bidder in the auction to acquire Frontier. The auction was conducted under procedures established in Frontier’s Chapter 11 bankruptcy cases.

Republic submitted the highest and best bid, which included substantial improvements from its original investment proposal. Republic waived virtually all conditions precedent to closing and has advised Frontier that it yesterday received Hart-Scott- Rodino antitrust clearance for the transaction. Republic also agreed to waive distributions on its $150 million prepetition unsecured claim, which is expected to result in a 94 percent increase in the distribution to Frontier’s general unsecured creditors. The selection of Republic’s bid was made in consultation with the Creditors’ Committee appointed in Frontier’s Bankruptcy Case.

“We appreciate the participation of both Republic and Southwest Airlines in our auction process,” said Frontier President and Chief Executive Officer Sean Menke. “We are pleased to have Republic as a plan sponsor that will allow Frontier to emerge from bankruptcy as a well-financed, competitive and sustainable airline. This plan provides for Frontier and Lynx to maintain normal operations as a subsidiary of Republic, with further capital and growth opportunities in the future. This is also great news because it is expected to preserve the jobs of most Frontier employees, who have worked tirelessly to further build our unique brand and deliver outstanding service to our customers. I would be remiss if I didn’t mention my 5,000 plus team members. Today’s announcement is the beginning of a wonderful new chapter for this proud organization and would not have happened without the hard work, dedication and sacrifice of them all.”

“I look forward to welcoming Frontier to our Republic family,” said Bryan Bedford, Chairman, President and CEO of Republic. “Frontier has made impressive strides in returning to sustained profitability in a challenging and uncertain economic environment. We congratulate the employees of Frontier. Their commitment and perseverance during the bankruptcy process has allowed the Frontier brand to survive and thrive.”

Frontier’s unsecured creditors will continue voting on Frontier’s current proposed Plan of Reorganization, which is premised on a Republic acquisition. Pursuant to its investment agreement, Republic has agreed to purchase 100 percent of the stock of Frontier Holdings upon its emergence from bankruptcy for $108.75 million, so long as certain conditions are met. Frontier Airlines Holdings would become a wholly-owned subsidiary of Republic, an airline holding company that owns Chautauqua Airlines, Midwest Airlines, Mokulele Airlines, Republic Airlines and Shuttle America.

 In the end, it was the inability of the pilots unions to reach an agreement about representation for the merged airline that made Southwest's bid "unacceptable."  Gary Kelly, Southwest's Chairman of the Board, President, and CEO said in a news release "We were fortunate to be in a position to examine the acquisition to see if it was the right decision for Southwest Airlines. We chose not to amend our bid to remove the labor requirement, a key reason our bid was not selected. Our congratulations to Republic Airways and Frontier Airlines."

As stated in its initial statement of interest on July 30, 2009, Southwest said there would be several contingencies to be resolved for a deal to go through. Key in its position, Southwest was not willing to remove the need for the two Pilot Unions to reach agreement. Southwest says its Culture and relationships with its Employees are too important to compromise.

One of the contingencies in Southwest's proposal was that labor groups from the two airlines would need to reach an agreement on how the two Pilot Unions (SWAPA and FAPA) would work together. Despite a good faith and diligent effort by all involved, including the top leadership of the Southwest Airlines Pilots Association (SWAPA) and the Frontier Airlines Pilots Association (FAPA), who labored long into the night, the two unions were not able to come to an agreement before the auction deadline. As a result, Southwest's bid was deemed unacceptable.

Frontier currently expects to emerge from Chapter 11 this fall.

FMI: www.frontierairlines.com/restructure, www.southwest.com