Republic Gets Ready To Fly In Another Direction

Nov. 09--Indianapolis-based Republic Airways Holdings confirmed plans Tuesday to sell Frontier Airlines after a wild and bumpy two years.

Republic's roots are in operating flights for larger carriers, including American, Continental, Delta, United and others. Its foray into operating Denver-based Frontier's scheduled passenger service has been anything but smooth.

Industry consultant Michael Boyd, president of Boyd Group International in Colorado, said Republic made the right move in 2009 in buying Frontier out of bankruptcy for $109 million. But circumstances quickly changed.

"They may have a little remorse because it hasn't turned out exactly like they expected, but it was good management that shows a strong vision for the future," Boyd said.

Republic spokesman Pete Kowalchuk declined to characterize the Frontier experience as remorseful.

"Republic's purchase of Frontier wasn't an experiment. Given the consolidation in the industry, the company made its acquisitions to engage in the branded market as a way to mitigate the trend it was seeing in the regional business," Kowalchuk said. "The fact that a global recession hit and the price of fuel rose much more than (expected) necessitated a restructuring of Frontier, which has been accomplished."

Republic Chairman and CEO Bryan Bedford said the company's directors have agreed to hire a financial adviser to evaluate the best way to spin off Frontier to Republic shareholders or sell it outright.

The announcement came with mixed but generally upbeat financial results. In the third quarter, Republic beat stock analysts' expectations and posted one of the best operating margins in the aviation industry.

Bedford also announced that restructuring agreements have been signed for $120 million in savings for Frontier, a goal he signaled to shareholders in June.

And later in the day, Republic confirmed its order for 80 new Airbus planes to upgrade the Frontier fleet with a new generation of fuel-efficient engines. Bedford said the new planes "will allow Frontier to continue to offer travelers low fares despite persistently high fuel prices."

For Indianapolis, a sale of Frontier is expected to have little impact. Few Frontier jobs were moved here, nor did the company's purchase bring many new Frontier flights here.

However, a sale could have a big impact in Frontier's hometown of Denver -- particularly if a buyer can't be found or if a buyer would move the hub or headquarters.

"When an airline looks like it is in trouble, the weirdos come out in droves with grand plans to buy it, so you can never tell," Boyd said. "No other airlines are likely to want it. They could spin it off to shareholders or find an investment group to buy it."

Still, news that Republic would separate itself from the money-losing Frontier was a boon for Republic on Wall Street.

Shares of Republic closed the day at $4.34, up more than 61 percent from the previous day. About 4.4 million shares were traded, which was nearly 10 times greater than the volume of an average day.

Republic Airways acquired Frontier from bankruptcy court and bought Midwest Airlines when it was teetering on bankruptcy and then combined them under the Frontier flag.

In a series of recent cost-cutting moves, more than 20 money-losing Frontier flights have been grounded, and nearly all but a few of the airline's small 50-seat aircraft have been removed from the fleet, moves that also make it more attractive to buyers.

Republic's stock has been on a roller coaster the past five years, battling the headwinds of the recession and then the uncertainty of the 2009 purchase of financially troubled Frontier and Midwest.

Mix in the rapidly rising cost of jet fuel, a trend that hammered all airlines' profits, and shares of Republic have slid from $23 in 2007. In the past 52 weeks, Republic has traded between $2.47 and $8.89.

"Huge sigh of relief as Republic returns to profitability" was the caption on a "buy" recommendation issued at midday from Michael Linenberg of Deutsche Bank.

He said Republic's third-quarter revenues of $768 million were $51 million better than forecasts because Frontier, while still losing $4 million in the quarter, was trending in a profitable direction.

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