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.