Frontier Win Surprises Even Republic's CEO

In the end, the auction for Frontier Airlines was not strictly a matter of money. Frontier and Southwest Airlines' (LUV) pilots unions quickly determined this week that melding seniority lists would prove difficult, at best. Southwest officials saw the potential for long-term rancor in their labor force, thanks to a messy integration of some Frontier employees who would be dispirited by the disappearance of their airline and the wave of pink slips that would have accompanied it. The cultural risk to Southwest, the airlines' executives decided, would likely not be worth the reward of marginally better financial performance from the Denver market.

The outcome also surprised Republic Airways (RJET) CEO Bryan Bedford, whose company won the auction for Frontier after Southwest declined to amend a term in its bid that said its pilots would need to reach a deal with Frontier pilots before any sale could close. In an interview on Aug. 14, Bedford said he thought that, strategically, Southwest had firmly decided it needed Frontier. "Honestly, I thought the value of Frontier in the hands of Southwest was more important to them than the value of Frontier in our hands," said Bedford. "I really viewed this as a David-Goliath sort of struggle." Republic sweetened its initial $108.8 million offer by agreeing to cancel a $150 million secured claim in Frontier's bankruptcy, thereby giving unsecured creditors a higher collection on their claims. The deal is expected to close on Sept. 17. link......