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Republic Airways' stock price continues to sag

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Shares of Indianapolis-based Republic Airways Holdings on Monday closed at an all-time low of $2.84 each, down more than 70 percent from their 52-week high.

Republic shares have fallen more than 28 percent since it posted a $15 million loss for its fiscal second quarter on Aug. 2 because of trouble experienced by subsidiary Frontier Airlines, which it acquired out of bankruptcy in 2009.

Returning Frontier to profitability is seen as a daunting task, and some industry analysts have wondered aloud if the Denver subsidiary will end up in bankruptcy again or Republic will become an acquisition target.

“We believe the shares reflect increased concern regarding a near-term liquidity event due to [the Frontier operations],” Raymond James analyst James Parker said in a recent report.

If management cannot successfully turn around Frontier, the Denver-based airline could file for bankruptcy without creating a liquidity problem at parent Republic, he said.

Parker pointed to Atlanta-based Global Aero Logistics, which owned and then put into bankruptcy the now-defunct Indianapolis-based ATA Airlines. Global, as well as its other airline subsidiaries, were able to conduct business as usual despite ATA’s bankruptcy, noted the report.

But any specter of bankruptcy would likely be a drag on Republic's already-troubled stock price.

Parker and other analysts note that Republic management has been making progress toward an internal restructuring of Frontier: a plan to reduce costs by $120 million by year-end.

As of early last month, Republic achieved $90 million toward its $120 million cost-reduction goal, according to Deutsche Bank. “Overall we are pleased with [Republic’s] restructuring efforts for the unit,” wrote Deutsche Bank analyst Michael Linenberg.

Republic, which had been solely a contract carrier flying regional jets for big airlines, in 2009 bought Frontier and Milwaukee-based Midwest Airlines – both of which were its customers and were in financial turmoil.

At the time, Republic CEO Bryan Bedford cited diminishing growth prospects in the regional airline business, in part due to the continued mergers of large carriers for whom Republic flies under its Chautauqua Airlines and Republic Airlines subsidiaries. The company's stock has struggled since the acquisitions.

Bedford’s team is slashing costs at Frontier, including transferring some of its more costly-to-fly regional aircraft back to its contract-flying business.

Republic also reached a concession package with Frontier’s pilot’s union this summer in return for giving pilots an eventual ownership stake in the carrier.

However, the Teamsters union won representation of pilots during an election shortly thereafter, and last month filed a lawsuit in federal court that seeks to nullify the concession agreement. The Teamsters allege Republic and the former Frontier pilots union colluded to interfere with the election. Republic officials have denied the allegation.

Republic tried unsuccessfully to resolve the suit in court by Sept. 12, concerned it could put in jeopardy a financing plan to acquire more efficient Airbus aircraft at Frontier, Parker noted in his report.

The Teamsters have come out swinging at Republic, saying on Sept. 9 that Republic plans a “sham furlough” of  56 pilots at its profitable contract-flying operation.

“Republic executives are trying to blame the pilots for their own inability to create a viable business plan at its subsidiary, Frontier,” Teamsters airline director David Bourne said.

Some of the layoffs, however, appear to involve pilots flying some of the least economical types of regional jets.

Republic's stock nosedive makes it a possible acquisition target, according to some in investment circles.

"Republic Airways has plenty of cash and a low value for its assets," said Jonathan Yates, a financial writer for the SmallCap Network. "It is a cheap stock, by any measure. ... For an investor such as a hedge fund or provate equity group, or a competitor such as American Airlines, United Continental or Deltal looking to acquire assets on the cheap, Republic Airways is a tempting target."

While Republic would seem to have a lot of upside growth potential in better times, it has more than $2 billion in long-term debt that might keep potential acquirers at bay.

“It seems a lot of these [types of acquisitions of late] are companies with a lot of cash, buying companies that are doing reasonably well,” said Mark Foster, managing director at Columbus-based investment firm Kirr Marbach & Co. “It’s a tough industry.”

Republic shares rebounded on Tuesday as the overall market swung upward, but fell 2.9 percent Wednesday morning, to $3.01 each.

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