Bedford assesses Southwest's bid for Frontier

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Republic Airways Holdings appears poised to compete with Southwest Airlines for the purchase of Frontier Airlines after the Dallas-based carrier on 30 July unveiled plans to submit a $113 million bid for its rival in Denver.

On 22 June Republic, which has supplied Frontier with $40 million in debtor-in-possession financing, revealed its decision to purchase Frontier for $108 million upon its exit from bankruptcy. Republic on 31 July finalised its purchase of Midwest Airlines.

During an interview with ATI the day the Midwest deal closed, Republic CEO Bryan Bedford did not directly state any plans to counter the Southwest bid, but did note: "I'm not going to tell you we put our best offer on the table first. We joke that if nobody put in a competing bid than we paid too much. There's a little validation here."

Bedford is not surprised "to see another strategic buyer step up and want to buy this business [Frontier], because it is a fundamentally sound operating company. I am a little surprised it was Southwest".

Now that it is clear Frontier is going to emerge from Chapter 11 as a viable competitor Bedford notes that Southwest "very astutely says 'what's the cost of competing with the new guy for the next three years?'

Bedford explains Southwest could be asking itself "is the better option, the more economic option for us just to buy it [Frontier]".

"In their calculus," Bedford reasons, "the value that they can obtain from eliminating the competition in the Denver market is more valuable than what we can do with it."

While Bedford does realise Southwest's ability to develop and finance a "dramatically higher offer or valuation for Frontier than we can, it will be up to the board of Frontier and the creditors to decide if the vision Southwest has for Frontier is better than vision we have".

Bidding procedures established in Republic's investment agreement with Frontier were approved by the court overseeing Frontier's reorganisation on 13 July. Characterising it as a "quick tempo" Bedford says the deadline for interested bidders is 3 August, with a deadline for best and final bids of 10 August. The bankruptcy court and unsecured creditors then have seven days to scrutinise the bids.

"I think it will be interesting to see how transparent Southwest will be with their bid economics on Monday", Bedford says. "You can look at the investment agreement and think that is says one thing. You can interpret it however you want. It will be up to the court to decide if they're following the procedures."

Bedford also defines the current process for Republic's proposed acquisition of Frontier as "a fun thing to be involved in".