Republic Airways Holdings' bid to buy bankrupt Frontier Airlines won out over a higher bid by Southwest Airlines after pilots leaders for Southwest and Frontier could not agree on how to combine their two groups.
Republic's $108.8 million bid for all of Denver-based Frontier was selected by a federal bankruptcy judge in New York late Thursday over Southwest's $170 million bid for 80% of Frontier and its Lynx regional subsidiary.
Frontier's unsecured creditors -- including Republic, its largest creditor -- would have gotten nearly 5 cents more on the dollar they're owed under Southwest's bid. But Southwest would not back off its condition that the Southwest and Frontier pilots unions reach agreement on merging their seniority lists before the deal closed. Talks between the unions broke off late Wednesday night, and efforts on Thursday to put a union deal together at the last minute failed.
Southwest CEO Gary Kelly, citing concern for maintaining his company's employee-friendly culture, said, "We said all along that we would only move forward on this deal if it proved to be the right decision for our employees and financially prudent."
Republic plans to keep Frontier operating as it currently does in direct competition from its Denver hub with United Airlines and Southwest. One of Republic's three regional airline subsidiaries flies as the United Express regional carrier there.
Republic's regional units are Chautauqua and Republic airlines, and Shuttle America. But they do not operate under their own names. Rather, they contract with major airlines to provide regional carrier services under the major carriers' brand names, such as Delta Connection and US Airways Express.
Republic also is part owner of tiny Mokulele Airlines in Hawaii. And last month it completed its acquisition of bankrupt Midwest Airlines, a Milwaukee-based carrier that it plans to transition to smaller Embraer regional jets.
According to an e-mail to Southwest pilots from the Southwest Airlines Pilots Associations' merger negotiators, their union wanted Frontier's 700 pilots to all go to the bottom of Southwest's seniority list.
They argued that Frontier pilots would still be getting a raise and that their long-term career prospects would be much better with Southwest. Frontier Airlines Pilots Association officials, the SWAPA e-mail said, insisted on "relative" seniority: They wanted Frontier captains to remain captains at Southwest, even if that left Southwest pilots with more years of experience lower on the combined seniority list.
Southwest's plan had been to phase out Frontier's 51 Airbuses over two years, replacing them with Boeing 737s, its preferred airplane. The acquisition, Southwest officials have said, would have given Southwest the ability to resume its once-rapid growth and enter two major air travel markets it does not yet service: Atlanta and Washington Reagan National.
