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Southwest eager to keep Lynx feed in Denver

Southwest Airlines appears keen to retain the feed currently supplied by Frontier Airlines' subsidiary Lynx if the Dallas-based carrier is successful in its bid to acquire Frontier in the Chapter 11 restructuring process.

Calling the $113 million tabled in a 30 July announcement of its intent to submit a bid for Frontier as a "placeholder", company EVP of corporate services Ron Ricks says the $170 million formally submitted by Southwest today is a product of the carrier's due diligence in the last week, including working through various scenarios of Frontier's fleet plan. If Southwest is successful in its bid, it would operate 40 of 51 Airbus narrowbodies currently flown by Frontier for 24 months, and replace those aircraft with Boeing 737-700s.

Southwest views the Lynx Bombardier Q400 operation as a strong portion of the business, as carrier EVP of strategy and planning Bob Jordan says Southwest has determined Lynx works very well with the Frontier mainline operation at Denver.

Referring to Lynx as a "valuable asset" during a media call today, Jordan says Southwest wanted to ensure it was part of the bid.

The entity ultimately responsible for operating Q400s remains uncertain as Southwest plans to study different scenarios including selling the operation, contracting the flying or incorporating Lynx into its own operation.

Responding to a question over any potential discussions with Republic Airways Holdings regarding the operation of the Q400s, Ricks says the companies are precluded from those discussions since they are competing for the purchase of Frontier. However, Ricks says those types of scenarios "could get interesting at auction". Republic submitted an initial $108 million bid, and has not commented today regarding a higher offer.

The next steps in the acquistion process include Southwest management making a formal presentation to Frontier and its creditors committee on 12 August ahead of the auction on the following day.

Ricks says Southwest's bid increases the amount paid on the dollar to Frontier's unsecured creditors - of which Republic is one of the largest - from 8.7 cents offered by Republic in its bid to 12 cents.

Republic has agreed to supply Frontier $40 million in debtor-in-possession financing, and if Southwest supplies the winning bid it would repay Republic that amount and infuse an additional $10 million into Frontier. Republic would also receive a $3.5 million break-up fee and roughly $20 million from its total $150 million unsecured claim, says Jordan.

The Southwest executives state transitioning Frontier's fleet to Boeing 737-700s is one of the more complicated elements of its bid as Southwest has to work through Frontier's fleet plan of ordered, owned and leased Airbus aircraft. A number of additional unsecured claims are created in the Southwest bid, says Jordan, which could stem from rejected aircraft leases. Post-petition those claims become affirmed and Southwest pays a dollar for dollar amount on those claims versus the 12 cents on the dollar for unsecured creditors.

Southwest also believes it can obtain Frontier's six beyond-perimeter slots at Washington National airport as Jordan explains he believes the US government's precedent is to assign those slots to the acquiring carrier.

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