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Republic studies $113M boost from sale of planes, slots

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Republic Airways Holdings Inc. is considering the sale of planes and airport landing rights in Washington, D.C., to help raise about $113 million in a second round of restructuring at its unprofitable Frontier Airlines unit.

The plan also includes removing a lavatory to make room for three more seats on some of the carrier’s Airbus SAS jets and indefinitely deferring some aircraft purchases from Embraer SA, CEO Bryan Bedford told employees in a memo obtained by Bloomberg News.

Republic fell $15 million short of its goal to keep an unrestricted cash reserve of at least $200 million in the third quarter, Bedford wrote. The Indianapolis-based airline is projected to post a profit when it reports results next month, based on estimates from seven analysts surveyed by Bloomberg.

“Absent asset sales, we will be even further below that target by the end of the year,” Bedford said. “So again, we have to make tough choices, and we will.”

Republic isn’t discussing Bedford’s memo because it was an internal letter to employees and not intended for distribution outside the company, Peter Kowalchuk, a spokesman, said Wednesday in an e-mail.

Bedford took on a new business model by operating Frontier under its own brand after Republic bought the Denver-based airline out of bankruptcy in October 2009 for $108.8 million. Republic’s previous focus had been regional flights for carriers such as Delta Air Lines Inc. and American Airlines.

Republic is “close to completing” an initial $120 million restructuring at Frontier, including concessions from employees and vendors, Bedford told employees.

Steps under study in the new restructuring round include whether to sell flight slots at Ronald Reagan Washington National Airport valued at almost $50 million, and 10 Embraer E190 jets, for a total of about $40 million, Bedford wrote.

“We have placed aircraft on the market for sale to test the water on cash values, but we have not made a decision to remove any aircraft as yet,” he said.

Another $20 million in cash would become available under a tentative agreement with Embraer to accept two new E190s next month under a previous order and defer the remaining jets, Bedford wrote. Embraer would return about $3 million in cash deposits to Republic, he wrote.

“Investing limited cash reserves in new aircraft is just impossible right now,” Bedford told employees.

The airline ordered six E190s in November 2010 for delivery from August through December of this year, with a “conditional” order for 18 E190 or E195 jets. Embraer declined to comment on Republic’s pending orders, said Flavia Sekles, communications director for the Sao Jose Dos Campos, Brazil- based planemaker.

A quarterly profit for Republic would end a streak of three losses that began in the last three months of 2010. The shares have tumbled 65 percent this year, closing Wednesday at $2.55 each.

Republic’s 2012 business plan is being completed over the next several weeks and will go to directors for approval on Nov. 2, Bedford wrote.

Taking out one of three lavatories on Frontier Airbus A318s and A319s would let the carrier put three more passengers on each flight, boosting sales and spreading operating costs across more seats on each plane, Bedford wrote.

“We can generate much-needed extra revenue from those additional seats with a very small risk to customer satisfaction,” the CEO said.

The change would make Frontier’s jets comparable to similar-sized planes flown by Southwest Airlines Co., Allegiant Travel Co. and Spirit Airlines Inc., all of which have two bathrooms, according to the memo.

Frontier can add six seats to its larger A320 jets by switching to a “slim-line” model that also would reduce weight and fuel burn, Bedford wrote. Frontier has 41 A319s, four A318s and 14 A320s, according to its website. Republic, operating for Frontier, flies 15 E190s.

The future for four Bombardier Inc. Q400 turboprop aircraft and three E170s is being evaluated, Bedford wrote.


 

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