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Frontier says Southwest's bid was hurt by more than just the pilot troubles

Oneflap

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F9 says SWA bid was hurt by more than just the pilots- Southwest Naive

By ERIC TORBENSON / The Dallas Morning News
etorbenson@dallasnews.com


A pilot labor deal for Southwest Airlines Co. might not have made a winning difference in its bid for the assets of bankrupt Frontier Airlines.
It's true that Southwest's pilots couldn't broker an agreement with Frontier's union, causing the Dallas-based airline to withdraw its $174 million bid late Thursday. That made Republic Airways Group Inc. the default winner.
But pilot opposition was only one of several reasons the deal fell apart in the 11th hour. Frontier management and creditors had other problems with Southwest's offer. And there were things they liked more about Republic.
Frontier officials talked publicly Friday about the two offers and their decision process. Southwest officials wouldn't comment beyond a statement issued Thursday evening.
Frontier executives said they liked Republic's ability to close its deal quickly and its commitment to expand Frontier's fleet of Airbus planes. The fact that Republic sweetened its offer at the last minute also helped, Frontier managers said Friday. It had originally bid $108.8 million, but Frontier didn't release the amount of the winning offer.
"I think both parties had a substantial chance of winning," said Sean Menke, Frontier's chief executive, in a conference call. However, Republic's ability to get Frontier out of bankruptcy protection by next month and its vision to keep Frontier as its own airline were significant factors, he said.
Southwest's offer probably would have triggered antitrust concerns from the Department of Justice, and a full competitive review could have taken four to six months, Menke said. Republic has already received antitrust approval to buy Frontier.
Also, Southwest's plan to drop 11 Airbus planes from Frontier's fleet of 51 would have delayed the bankruptcy case and added extra costs that Republic's bid avoids.
Not apples to apples


Among the biggest misconceptions of the auction process was the price tag. Southwest's $174 million offer – some details of which were not made public until Friday – included merger-related costs that never would have found their way to Frontier's creditors. It included a series of extra charges to pay off aircraft lessors and other creditors as well as money for Republic's claim against the Frontier bankruptcy and a termination fee for Republic, an Indianapolis-based airline holding company.
"These were not apples-to-apples comparisons," said Ted Christie, Frontier's chief financial officer.
Indeed, the bids were just a few million dollars apart in total value initially, despite the different totals. Southwest's bid would have paid creditors at a rate of 12 cents on the dollar; Republic's at 9 cents.
But Republic sweetened its offer late in the game, effectively pushing the amount of money creditors received to 19 cents on the dollar by agreeing to accept less money for its claims.
Southwest 'naive'


Critics who watched the process closely said Southwest's bid wasn't ready for prime time. Southwest executives "seemed not to understand the dynamics of the process or the obvious bottlenecks and complexities involved," said industry consultant Mo Garfinkle of Arlington, Va. Southwest "was naive and it didn't know it. It underestimated Republic and its talented management team, and it overestimated the reception to a Southwest bid, especially by the Frontier stakeholders."
Southwest withdrew its bid Thursday evening when the pilots' unions of the two airlines could not reach agreements before the auction process, as was required by Southwest's offer. The offer would have given pilots more pay, but kept them at the bottom of the seniority list.
In a note to members Friday, Carl Kuwitzky, president of Southwest's pilots' union, said he applauded Southwest chairman Gary Kelly for sticking to a promise to have the labor settlement a condition of the bid. "I called Gary last night to personally thank him, and he shared a closing thought that I agree with – 'It was not meant to be.' "
Kuwitzky said his team had 3 ½ hours Wednesday to negotiate an agreement that typically would take months. He had his doubts that Frontier pilots "had any intention of ever reaching an agreement" with Southwest and said Frontier's union never responded to calls for more talks Thursday.
Picking the winner was up to Menke, his executives and Frontier's board of directors after they consulted with Frontier's creditors committee. Their obligation was to keep the bidders informed about their status and to work with the trailing bidder to raise their offer. "The whole process was very cordial," he said. "Southwest was very professional."
For Frontier, the focus turns to growing its fleet and emerging from bankruptcy protection, which it said is possible by Sept. 17. Frontier was forced into bankruptcy in April 2008, when its credit card processor changed the terms on ticket sales and tied up substantial amounts of its cash.
Battle for Denver


The Denver air market is no more appealing for three airlines than when Frontier filed for Chapter 11; Southwest continues to add to its presence, though analysts say the carrier is losing money on its fast-growing Denver operations, an assessment Menke agrees with. "They're having some difficulty here," he said, adding that he believes incumbent carrier United is also losing money in Denver and will cede more market share.
Frontier said its lower costs and brand loyalty will help it survive in Denver. Frontier believes its operating costs are lower than Southwest's and substantially lower than United's. "We will continue to compete very, very vigorously," Menke said.
Airline financial analysts such as Vaughn Cordle of AirlineForecasts LLC expect a brutal war of attrition in Denver. Republic-controlled Frontier is unlikely to win unless Republic replaces some of Frontier's Airbus aircraft with its own regional jets flown by pilots making substantially less than what Frontier pilots are paid.
He estimates that Frontier's pilots cost the carrier $170 an hour in wages and benefits, compared with $99 an hour for Republic's regional jet pilots; Southwest's pilots cost $290 an hour, he estimates.
Cordle said that although Southwest pilots make more, the carrier can absorb deep losses in Denver that Frontier cannot.
Cutting pilot costs "is the only way Republic's Frontier survives," he said Friday, noting that Republic is in the process of switching out bigger planes for smaller ones with Midwest Airlines, the Milwaukee-based carrier that Republic officially bought July 31. Investors had bid up Southwest's shares 20 percent since July 30, when the airline announced its intention to bid on Frontier. Southwest shares fell 19 cents to $9.08 Friday, while Republic's shares rose 60 cents to $6.60.
 
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Caveman

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By ERIC TORBENSON / The Dallas Morning News
etorbenson@dallasnews.com


A pilot labor deal for Southwest Airlines Co. might not .......said industry consultant Mo Garfinkle of Arlington, Va. .........

Really? Mo Garfinkle? His ol' man should've just went ahead and named him Sue.

It's looking more and more like FAPA's reluctance to assimilate into the borg may have been well founded. No question the pay for F9 pilot's was pretty sweet with the SAW deal. However, a great pay scale is useless if you are furloughed or extinct.
 

crashpad

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I'm excited about being able to flow-thru. This deal is sweet!
 

Dubya

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What? No chiding Frontier pilots for "lowering the bar"? No backbiting about expanding the use of regional jets instead of the larger Airbus and 737? How exactly is this good for Frontier pilots if their future is locked into lower pay scales and smaller aircraft?

Hmmmm....lemme seee here....10 years into the future on the Southwest seniority list or 10 years into the future as a subsidiary of a regional airline conglomerate. I wonder which has a better chance of suceeding now?
Do any of you really believe that Republic won't do the same thing with Frontier that they are doing with Midwest?

How do you all feel about the Republic pilots all chomping at the chance to replace Frontier flying just as they have Midwest? I've seen people called scabs for less here.

W
 

Oneflap

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what? No chiding frontier pilots for "lowering the bar"? No backbiting about expanding the use of regional jets instead of the larger airbus and 737? How exactly is this good for frontier pilots if their future is locked into lower pay scales and smaller aircraft?

Hmmmm....lemme seee here....10 years into the future on the southwest seniority list or 10 years into the future as a subsidiary of a regional airline conglomerate. I wonder which has a better chance of suceeding now?
Do any of you really believe that republic won't do the same thing with frontier that they are doing with midwest?

How do you all feel about the republic pilots all chomping at the chance to replace frontier flying just as they have midwest? I've seen people called scabs for less here.

W

lol......
 

Crossky

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What? No chiding Frontier pilots for "lowering the bar"? No backbiting about expanding the use of regional jets instead of the larger Airbus and 737? How exactly is this good for Frontier pilots if their future is locked into lower pay scales and smaller aircraft?

Hmmmm....lemme seee here....10 years into the future on the Southwest seniority list or 10 years into the future as a subsidiary of a regional airline conglomerate. I wonder which has a better chance of suceeding now?
Do any of you really believe that Republic won't do the same thing with Frontier that they are doing with Midwest?

How do you all feel about the Republic pilots all chomping at the chance to replace Frontier flying just as they have Midwest? I've seen people called scabs for less here.

W

Amen! And BTW crashpad was being sarcastic, if you couldn't tell.
 

superfreight208

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does anybody besides me see whats wrong with this!

pilots making substantially less than what Frontier pilots are paid.
He estimates that Frontier's pilots cost the carrier $170 an hour in wages and benefits, compared with $99 an hour for Republic's regional jet pilots; Southwest's pilots cost $290 an hour, he estimates.


I want to fly for Republic so I can make a lot of money!
 

Beech Balls

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enough
SWA offered a lot too....
Pay protection
Seat protection
Domicile protection (for 3 years in DEN)
and to BRING BACK ALL Furloughees, with pay, and medical.
Average FO would've had a 40% pay raise, and most captains would have gotten a raise as well.

But Hey, they didn't want job protection with a raise for the next three years...

I was flying with a Morris guy that got tacked on the bottom of the list and he said: "I was just happy to have a good job with pay and benefits."

THAT'S WHAT MATTERS IN THIS ECONOMY. And I understand FAPA didn't listen to any of it's pilots. They apparently acted of their own accord and didn't come to the table soon enough to talk....
 

climb2slow

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SWA offered a lot too....
Pay protection
Seat protection
Domicile protection (for 3 years in DEN)
and to BRING BACK ALL Furloughees, with pay, and medical.
Average FO would've had a 40% pay raise, and most captains would have gotten a raise as well.

But Hey, they didn't want job protection with a raise for the next three years...

I was flying with a Morris guy that got tacked on the bottom of the list and he said: "I was just happy to have a good job with pay and benefits."

THAT'S WHAT MATTERS IN THIS ECONOMY. And I understand FAPA didn't listen to any of it's pilots. They apparently acted of their own accord and didn't come to the table soon enough to talk....
There was absolutely NO statement about bring anyone back. Only that they would be on the Southwest list. In fact, had the deal gone through there would have been an additional 120 Frontier pilots not working. Sure they would have been on the almighty list, but not right away.
 

Tarzan

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There was absolutely NO statement about bring anyone back. Only that they would be on the Southwest list. In fact, had the deal gone through there would have been an additional 120 Frontier pilots not working. Sure they would have been on the almighty list, but not right away.

I had to quote you to be able to read your post. There are some distracting jugs in your avatar.
 

GuppyWN

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Climb,

I hate to re-engage on this but if you are on an airlines seniority list and are furloughed you have recall rites. That means you are inactive EMPLOYEE. Every single F9 pilot would have been considered a Southwest pilot employee and had FULL recall rites for 7 years.

Gup
 

DoinTime

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Climb,

I hate to re-engage on this but if you are on an airlines seniority list and are furloughed you have recall rites. That means you are inactive EMPLOYEE. Every single F9 pilot would have been considered a Southwest pilot employee and had FULL recall rites for 7 years.

Gup

Wow....I'll bet that a seniority number thats on furlough status really does a good job at paying the bills. :rolleyes:
 
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