Southwest Airlines makes bid for Denver-based Frontier

Southwest Airlines Co., the largest discount carrier, said it offered at least $113.6 million to buy Frontier Airlines Holdings Inc. in a bankruptcy court auction.

The nonbinding bid would compete with a pending offer of $108.8 million from Republic Airways Holdings Inc. That purchase accord, approved by a U.S. bankruptcy judge this month, allows Denver-based Frontier to accept a better offer if one emerges.

Buying Frontier would give Dallas-based Southwest a bigger foothold in the Rocky Mountain region and a chance to operate its first flights outside the U.S. to leisure markets including Cancun, Mexico, and San Jose, Costa Rica. Southwest also would get access to Atlanta, the world’s busiest airport.

“Taking the Denver gates and equipment from Frontier would give them a large presence there, and the cities that aren’t on Southwest’s route map now could easily be integrated,” said Dave Swierenga, president of AeroEcon, an aviation consulting firm in Round Rock, Texas.

Southwest also would be forced to adapt its strategy for curbing training and maintenance costs by flying only Boeing Co. 737s, because Frontier uses Airbus SAS jets.

Frontier filed for bankruptcy on April 10, 2008, squeezed by competition in Denver from UAL Corp.’s United Airlines and Southwest, which resumed service there in January 2006 after a 20-year hiatus. Southwest’s other airports in the region include Las Vegas, Salt Lake City, Phoenix and Albuquerque, New Mexico.

“We have the cash, access to capital and collateral that allows us to take advantage of this existing opportunity and synergies between Southwest and Frontier,” Southwest Executive Vice President Ron Ricks told employees in a blog posting today. “This is an opportunity to expand our network.”

The final form of the bid hasn’t been set, Ricks said. Frontier would operate for an undetermined period as a subsidiary. Ricks also said in the posting that Southwest hasn’t decided what to do with Frontier’s Lynx unit, which operates Bombardier Inc. turboprops on regional routes.

Steve Snyder, a Frontier spokesman, declined to comment on whether any other parties beyond Republic and Southwest have expressed interest in making a bid.

“If there are multiple bids, we would conduct an auction with unsecured creditors on Aug. 11,” Snyder said. Messages left for comment with Tim Dooley, a spokesman for Indianapolis- based Republic, weren’t immediately returned.

U.S. Bankruptcy Judge Robert Drain in New York has set an Aug. 3 deadline for nonbinding bids for Frontier, with binding offers from qualified bidders due Aug. 10.

Southwest gained 16 cents, or 2.1 percent, to $7.83 at 2:42 p.m. in New York Stock Exchange composite trading. The shares reached $7.89 earlier, the highest in intraday trading since Jan. 27. Republic fell 2 cents to $5.20 in Nasdaq Stock Market trading.

A successful purchase would be the first by a major U.S. carrier since Delta Air Lines Inc. bought Northwest Airlines Corp. in October 2008. Southwest is the fifth-biggest U.S. airline, based on miles flown by paying passengers.

Southwest’s last acquisition was in 1993, when it paid $130 million for Morris Air, a low-fare carrier based in Salt Lake City.

In 2004, Southwest outbid AirTran Holdings Corp., parent of AirTran Airways, in a bankruptcy court auction to acquire Chicago gate leases held by ATA Holdings Corp. Southwest used the gates to build its service at Midway Airport, now the second-busiest airport in Southwest’s system.

Southwest serves 66 cities in 33 states with about 3,300 daily departures, and will begin flights to Boston on Aug. 16 and Milwaukee on Nov. 1. It has more than 35,000 employees.

Frontier operates 51 Airbus jets and flies to more than 50 cities. It has about 5,000 employees. Lynx flies 11 Bombardier Q400 planes to 15 destinations with a 600-mile radius of Denver.

“We’ve been considering a bid for some time, independent of any action Republic took with its bid proposal,” Ricks said. “In the past month, we began an intensive study of the airline and expressed that interest to Frontier.”