Bankrupt U.S. regional carrier Frontier Airlines has reached a deal to sell itself to Republic Airways for USD$108.75 million so that it can exit bankruptcy protection.
The companies said on Monday that Republic would sponsor Frontier's bankruptcy reorganisation plan as part of the deal, and that the airline could emerge from bankruptcy in late 2009 as a subsidiary of Republic.
The deal is subject to potential higher offers at a mid-July bankruptcy auction and to approval of the bankruptcy court.
Frontier, one of the leading U.S. regional carriers, filed for bankruptcy protection in April 2008 as the price of fuel surged and its credit card processor said it would withhold more proceeds from ticket sales.
Frontier, founded in 1994, competes with Southwest Airlines and JetBlue Airways from its hub in Denver. Republic is based in Indianapolis and runs regional flights with large airline partners under such names as Delta Connection and US Airways Express.
"This agreement represents a major milestone in our ongoing efforts to position Frontier to emerge from bankruptcy as a competitive, sustainable airline," Frontier chief executive Sean Menke said in a statement.
Frontier, which has renegotiated agreements with its unions, has reported six months in a row of operating profit, despite the bankruptcy and economic recession.
Under the deal, Frontier Airlines and its Lynx Aviation unit would maintain their current names and continue operations normally, Frontier said.
When Frontier first filed for bankruptcy, investment firm Perseus agreed to provide bankruptcy financing in exchange for 79.9 percent ownership of the company, but Frontier's creditors rejected that offer and came up with their own bankruptcy financing for the company instead.
Frontier filed its proposed reorganisation plan with the court on Monday and is seeking approval of an investment agreement with Republic. Republic had offered the company a USD$40 million bankruptcy loan in March to help fund its working capital needs.
Under its proposed reorganisation plan, Frontier's unsecured creditors would receive USD$28.75 million in cash, about USD$40 million would be used to repay its debtor-in-possession loan, and its current common stock would get wiped out.
Files plan of reorganization
The agreement calls for Republic Airways Holding Inc. and its majority shareholder, Greenwich, Conn.-based Wexford Capital LLC, to invest $125 million after US Airways exits bankruptcy.
Republic's bid won out over a higher bid by Southwest after pilots leaders for Southwest and Frontier could not agree.