Republic reaches "non binding" agreement to sell Frontier

Washington DC
This story is sourced from Pro
See more Pro news »

After months of speculations, Republic Airways Holdings announces it has entered into an "exclusive, non-binding" agreement to sell its Denver-based subsidiary Frontier Airlines.

Executives at Indianapolis-based Republic say that the agreement becomes binding if certain unnamed conditions are met by the buyer, which executives also declined to name.

The announcement of the deal, which executives say could close late in the third quarter of 2013, was made during Republic's second quarter earnings call on 26 July.

Executives say a confidentiality agreement keeps them from discussing details of the deal.

They did say, however, that Frontier would retain orders for new Airbus aircraft if the deal closes.

Frontier has ordered 20 A319s with deliveries through 2020 and 60 A320s with deliveries through 2021, according to Flightglobal's Ascend Online database.

Executives say they are seeking to sell the airline because shareholders support a sale.

"Republic is not ready to make the investments to take [Frontier] to the next level of [being an] ultra-low-cost carrier," they add.

Republic purchased Frontier in 2009 for $109 million plus $1 billion in liabilities, and then embarked on a plan to transform it into an ultra-low-cost operator.

Media outlets reported in April that two firms - Phoenix, Arizona-based private equity firm Indigo Partners and New York City-based investment firm Anchorage Capital Group - were interested in purchasing the airline for between $20 million and $50 million.

Until now, the company had declined to discuss the possible sale.

Executives say that the pending sale has led it to postpone its planned 13 August shareholder meeting to 17 September.

Republic reports that Frontier realised a pre-tax income of $13.7 million in the second quarter, down nearly 3% from the same period last year.

Operating revenue was $327.6 million during the quarter, down 11.6%, and revenue per available seat mile (RASM) 11.98 cents, down 1.6%.

Cost per available seat miles (CASM) at Frontier during the period was 11.45 cents, down 2%, Republic reports.

Frontier's available seat miles declined 10.1% year-over-year to 2.7 billion due primarily to the elimination of six Airbus aircraft from the fleet, executives say.

At the end of June, Frontier operated 52 aircraft Airbus aircraft.

Republic also operated five 99-seat Embraer 190 aircraft under the Frontier brand during the quarter, down from 17 aircraft during the second quarter of 2012.

Republic says bookings on Frontier are strong for travel in August and September, and it expects the carrier to report revenue gains next quarter from new fees for carry-on bags and onboard nonalcoholic beverages.

Frontier's operating margin should be between 8% and 10% in the third quarter, Republic says.