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Republic may cut Frontier stake as pilots offer concessions

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Republic Airways Holdings Inc. agreed to seek new investors for Frontier Airlines, shrinking its stake to become a minority owner, in exchange for concessions from pilots at the unprofitable carrier.

The agreement is part of a plan to cut Frontier’s operating costs by $100 million, Indianapolis-based Republic said Friday in a federal regulatory filing. Republic, which bought Frontier out of bankruptcy in 2009, would reduce its holdings to less than a majority by the end of 2014.

Republic has struggled to mesh its primary business, operating regional flights for carriers such as Delta Air Lines Inc. and United Continental Holdings Inc., with the regularly scheduled passenger flights at Frontier.

Shares of Republic reached a 52-week low last week, closing Friday at $4.21.

Republic outbid much bigger rival Southwest Airlines to buy Frontier in a rare defeat for the Dallas-based carrier, which has been gunning hard against Frontier in key markets such as Denver.

Before buying Frontier—along with Milwaukee-based scheduled carrier Midwest Airlines in 2009—Republic since the 1970s had exclusively flown smaller, regional jets on contract for scheduled carriers.

Contract flying is not as vulnerable to spiking jet-fuel costs, as the brunt of such expenses are borne by the scheduled carrier that hires Republic. The contract flying unit produces “reasonably predictable margins” in the 7.5-percent to 8.5-percent range, Republic executives told analysts recently.

But Frontier’s fuel expenses during the first quarter of 2011 were 24 percent higher than the same period in 2010, representing a $30 million increase.  Republic recently said it is projecting further rises in fuel prices for the last three quarters of this year, or about a $90 million increase in expenses.

Republic’s acquisitions also created one of the industry’s most complicated labor integration challenges, particularly among pilots. Republic’s 2,500 pilots are represented by three unions, four counting the 400 Air Line Pilots Association-represented Midwest pilots that were placed on on furlough.

The pilot accord includes postponing scheduled pay increases; paring company contributions to a 401(k) plan; reducing sick days and vacation time; and extending the current labor contract by two years. It must be approved by pilots and Republic’s board.

Pilots would receive an equity stake in Frontier in exchange, according to the filing.

Republic must make a “good-faith” effort to find new investors and cut its ownership, raise at least $70 million through issuing debt or other financings, boost the size of Frontier’s fleet, establish a profit-sharing program for Frontier workers and implement a restructuring plan by the end of this year, according to the filing.



 

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  1. to mention the rest of Molly's experience- she served as Communications Director for the Indianapolis Department of Public Works and also did communications for the state. She's incredibly qualified for this role and has a real love for Indianapolis and Indiana. Best of luck to her!

  2. Shall we not demand the same scrutiny for law schools, med schools, heaven forbid, business schools, etc.? How many law school grads are servers? How many business start ups fail and how many business grads get low paying jobs because there are so few high paying positions available? Why does our legislature continue to demean public schools and give taxpayer dollars to charters and private schools, ($171 million last year), rather than investing in our community schools? We are on a course of disaster regarding our public school attitudes unless we change our thinking in a short time.

  3. I agree with the other reader's comment about the chunky tomato soup. I found myself wanting a breadstick to dip into it. It tasted more like a marinara sauce; I couldn't eat it as a soup. In general, I liked the place... but doubt that I'll frequent it once the novelty wears off.

  4. The Indiana toll road used to have some of the cleanest bathrooms you could find on the road. After the lease they went downhill quickly. While not the grossest you'll see, they hover a bit below average. Am not sure if this is indicative of the entire deal or merely a portion of it. But the goals of anyone taking over the lease will always be at odds. The fewer repairs they make, the more money they earn since they have a virtual monopoly on travel from Cleveland to Chicago. So they only comply to satisfy the rules. It's hard to hand public works over to private enterprise. The incentives are misaligned. In true competition, you'd have multiple roads, each build by different companies motivated to make theirs more attractive. Working to attract customers is very different than working to maximize profit on people who have no choice but to choose your road. Of course, we all know two roads would be even more ridiculous.

  5. The State is in a perfect position. The consortium overpaid for leasing the toll road. Good for the State. The money they paid is being used across the State to upgrade roads and bridges and employ people at at time most of the country is scrambling to fund basic repairs. Good for the State. Indiana taxpayers are no longer subsidizing the toll roads to the tune of millions a year as we had for the last 20 years because the legislature did not have the guts to raise tolls. Good for the State. If the consortium fails, they either find another operator, acceptable to the State, to buy them out or the road gets turned back over to the State and we keep the Billions. Good for the State. Pat Bauer is no longer the Majority or Minority Leader of the House. Good for the State. Anyway you look at this, the State received billions of dollars for an assett the taxpayers were subsidizing, the State does not have to pay to maintain the road for 70 years. I am having trouble seeing the downside.

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