Air- Investment Firms in Talks to Buy Frontier Airlines –

Posted: April 10, 2013 in Uncategorized

Apr. 9, 2013

Two investment firms are in discussions with Republic Airways Holdings Inc. to acquire discount-carrier Frontier Airlines in a deal that could be valued at more than $1 billion including debt, said people close to the negotiations.

Indigo Partners LLC, a Phoenix-based private-equity firm that specializes in airline investments, and Anchorage Capital Group LLC, a New York investment firm focused on distressed-debt trading and sectors including airlines, are competing to take control of Frontier, the people said.

The discussions remain at an early stage and could fall apart, the people said. A handful of possible suitors have expressed interest in Frontier, with Indigo and Anchorage emerging as the most serious potential bidders, they said.

Under the contours of a deal currently being discussed, a buyer would pay between $20 million and $50 million to purchase Frontier from Republic and then recapitalize the airline with an additional $100 million to $150 million, the people said. A buyer would also assume hundreds of millions of dollars of liabilities. There is also a scenario under consideration in which Republic would retain a minority stake in Frontier, they said. The details surrounding any deal remain fluid and could change as negotiations progress.


About 40% of Frontier’s flights begin in Denver.

Indianapolis-based Republic purchased Frontier out of bankruptcy proceedings in 2009 for $109 million and assumed $1 billion in debt and aircraft-lease obligations. Republic, a publicly traded carrier that flies small aircraft on behalf of large airlines, has said it wanted to try running a brand-name carrier in the hopes it could offset shrinking margins in its core business.

But Frontier posted losses of $148 million on a pretax basis during its first two years owned by Republic as high fuel prices squeezed the industry. Republic, which didn’t worry about fuel prices in its core business since larger airlines paid those bills, lost $165.6 million the first two full years of owning Frontier, according to securities filings. All the while, Southwest Airlines Co. surpassed Frontier in the share of total departing passengers from Frontier’s main hub in Denver, according to airport data.

Republic disclosed in April 2012 that it had hired bankers at Barclays Capital to seek buyers for Frontier.

Frontier’s fortunes have recently improved, partly because of a significant restructuring effort led by Republic Chief Executive Bryan Bedford that included union givebacks, changes in the carrier’s fleet and deep cuts to its schedule. Frontier has 6,900 flights scheduled this month, down nearly a third from a year ago, according to Innovata LLC, which tracks airline schedule data. The changes helped Frontier swing to a pretax profit of $24 million in 2012 on revenue of $1.4 billion.

Frontier carried 10.7 million passengers last year, with about 40% of its flights beginning in Denver, where it is the No. 3 carrier after United Continental Holdings Inc. and Southwest.

Indigo, run by former America West Airlines CEO William A. Franke, bought Spirit Airlines Inc. in 2006. As chairman, he transformed the carrier into a so-called “ultra-low-cost” airline and one of the fastest-growing carriers in the U.S.

In airline circles, Indigo is known for its investments in discount carriers across the world, including Tiger Airways Holdings Ltd. in Singapore, Wizz Air Hungary Airlines Ltd. in Hungary, and Volaris in Mexico. Mr. Franke has also teamed up with TPG founder David Bonderman on investments such as Ireland’s Ryanair Holdings PLC, a leading discount airline.

Mr. Franke hired US Airways Group Inc. CEO Doug Parker as finance chief at America West before it merged with US Airways. Mr. Parker now is in line to run the new American Airlines Group Inc. if a merger between American Airlines parent AMR Corp. and US Airways gets approved by federal antitrust officials.

Anchorage, too, has experience in the airline industry, investing in Spirit and other airlines. Anchorage specializes in trading debt of troubled companies and sometimes takes ownership of them through financial restructurings or bankruptcies. The investment firm’s co-founder, Kevin Ulrich, is best known for sitting on the board of film studio Metro-Goldwyn-Mayer Inc.’s corporate parent after forgiving large debt holdings for significant ownership of the Hollywood company during a streamlined bankruptcy reorganization.

Still, finding buyers for the airline has looked challenging from the beginning. In early 2012, Republic’s Mr. Bedford said in an interview with The Wall Street Journal that airlines that would fit well with Frontier, including JetBlue Airways Corp. and Spirit, had shown little interest, and that the chances another airline would buy Frontier were “very, very low.”


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