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Republic to provide update on Frontier sale, Indigo seen as buyer

By: JON HEMMERDINGER WASHINGTON DC 13 hours ago Source:

Republic Airways is expected to release more information about the pending sale of Frontier Airlines tomorrow, and a source says the buyer is private equity firm Indigo Partners.

Republic’s chief executive Bryan Bedford told Flightglobal last week that the company will make an announcement about the sale at a shareholders’ meeting scheduled for 10:00 on 17 September in New York City.

The meeting was initially scheduled for 13 August, but during a 26 July earnings call Republic announced the meeting had been postponed due to the pending sale.

Executives said the company had entered into a “exclusive, non-binding” agreement to sell the Frontier unit, but did not disclose the name of the potential buyer.

An source familiar with the situation speaking on condition of anonymity says Republic’s board will vote tomorrow on whether to sell Frontier to Phoenix, Arizona-based Indigo, which was formerly the largest holder of Spirit Airlines’ shares.

The source adds that David Siegel will remain Frontier’s chief executive.

For weeks, insiders have speculated that Indigo is Frontier’s unnamed buyer.

In April, media outlets reported that two firms, Indigo and New York-based investment firm Anchorage Capital Group, were interested in purchasing Frontier for between $20 million and $50 million.

Then in July, Miramar, Florida-based Spirit announced that Indigo was selling its 12.1 million Spirit shares, fuelling speculation that Indigo would use the proceeds to purchase Frontier.

In addition, Spirit announced in July that two of its board members — chairman William Franke and director John Wilson — would resign 7 August from the board.

Franke, chairman since 2006, is managing partner at Indigo and Wilson is an Indigo principal, said Spirit's website.

Michael Boyd, chairman of aviation consulting firm Boyd Group International, told the Denver Business Journal in July that most industry observers have "long believed Indigo would be the buyer".

Republic purchased Frontier in 2009 for $109 million plus $1 billion in liabilities, and then embarked on a plan to transform it into an ultra-low-cost operator.

The carrier has spread outside its Denver hub and instituted a series of new fees, announcing earlier this year that it would charge some customers $25 to $100 for carry-on luggage and $2 for non-alcoholic beverages.

Frontier has slashed capacity at its Denver hub, cutting routes to cities like Grand Rapids in Michigan, Colorado Springs, Akron-Canton in Ohio, Billings in Montana, Provo in Utah, Louisville in Kentucky, Philadelphia in Pennsylvania and Sacramento in California.

As it cut cities, Frontier launched new routes from secondary destinations like Trenton in New Jersey and Wilmington in Delaware.

Frontier now flies from those cities to most major destinations in Florida. It has also added flights to warm-weather destinations like Cancun and Cabo San Lucas in Mexico from a variety of cities in middle America.

In September, Frontier’s capacity at Denver will fall to 465,000 seats, down 14% from September 2012, according to Flightglobal/Innovata data.

The carrier’s number of flights declined to 3,223 in September, down 21% from the same month last year.

Bedford told Flightglobal that changes made to Frontier’s network in recent months have been “very positive” and that “revenue is exceeding” internal targets.
“The company is performing very well,” he says, but added that he needed more time to determine the full impact of the network changes.

Frontier earned an operating profit of $29.4 million in 2012, compared to a loss of $88.7 million in 2011, according to securities filings.

The company earned an operating profit of 14.5 million in the second quarter of 2013 and an operating loss of $19 million for the first quarter, according to Republic.

Bedford said Republic decided to sell Frontier because shareholders “had trouble putting value” on the company.

Investors understand how to value a regional carrier and a low-cost carrier, he said, but struggled with “hybrid” Frontier, a carrier that Republic has began transforming into a low-cost carrier along the lines of Spirit.