Airlines and Republic Airways and Transportation, Distribution & Logistics

Republic says potential buyers have surfaced for Frontier Air

February 7, 2012

Republic Airways Holdings Inc. has heard from potential buyers for Frontier Airlines and is close to naming an adviser on whether the unit will be sold or spun off to shareholders, CEO Bryan Bedford said.

The company will select Evercore Partners Inc., Barclays Plc or Seabury Group LLC for the advisory role, Bedford said in an interview Monday. Republic said in November that it would divest Frontier, two years after buying the Denver-based carrier out of bankruptcy.

Separating Frontier will let Republic return to its traditional role of providing regional flights for carriers such as Delta Air Lines Inc. A $120 million restructuring of Frontier that included job cuts and cost reductions has returned the unit to profit, allowing Republic to move ahead with the separation.

“We’ve had a number of calls from potential interested parties, saying ‘When you’re ready to talk we want to talk with you,’” Bedford said. “We haven’t been ready to talk yet.”

Republic shares have more than doubled since Nov. 7, the day before the Indianapolis-based company said it would separate Frontier. They fell 1.4 percent Monday to close at $6.17 each.

The probability is “fairly low” for a sale of Frontier to a competing “ultra low-cost carrier” such as Allegiant Travel Co., Spirit Airlines Inc. or JetBlue Airways Corp., the CEO said. Bedford declined to say if any of those competitors had expressed an interest in Frontier.

The company doesn’t have “a predisposition on what the right divestiture strategy is,” he said. “With the business producing profits and positive cash flow, we can be deliberate and make sure we’re getting the highest and best outcome, as opposed to feeling the need to rush into something.”

Republic is willing to be a “co-investor” in Frontier with a private equity group or to do just a partial spinoff to shareholders if needed, Bedford said.

Republic said last month that Frontier may be operating as a separate company in six to 12 months. David Siegel, a Republic director and former US Airways Group Inc. CEO, was named chief executive of Frontier last month. The carrier plans to continue paring costs, and Bedford said he couldn’t rule out additional job cuts “on the edges.” The company in November said it would trim 220 positions in Denver and Milwaukee.

Frontier will take delivery of 80 Airbus SAS neo aircraft that were ordered last year and will be delivered in 2016 through 2020, Bedford said. Republic’s separate order for 40 Bombardier Inc. CSeries aircraft remains intact, even as the airline is worried about the lack of sales for the jet, he said.

Republic is waiting to see whether the CSeries “is ultimately going to be built and delivered, which we believe it will be,” Bedford said. “What’s distressing is that it hasn’t been a particularly strong seller. We have concern about the viability of the project.”

Bombardier has 138 firm orders, 124 options, 10 purchase rights and 45 letters of intent for CSeries planes and has “seen significant progress” in development of the aircraft program, said Marc Duchesne, a spokesman for the Montreal-based company. The plane’s first flight is set for the end of this year, with initial deliveries by the end of 2013, he said.

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