Today: Dallas Morning News. F9 & WN

HalinTexas

昇る太陽の土&#
Joined
Feb 14, 2004
Posts
1,536
Total Time
10000+
Frontier says Southwest's bid was hurt by more than just the pilot troubles
10:13 AM CDT on Saturday, August 15, 2009

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.

Also Online
Blog: Airline Biz
Read more business coverage
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.
 

HalinTexas

昇る太陽の土&#
Joined
Feb 14, 2004
Posts
1,536
Total Time
10000+
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./QUOTE]

Absolute BS.
 

HalinTexas

昇る太陽の土&#
Joined
Feb 14, 2004
Posts
1,536
Total Time
10000+
Airline financial analysts such as Vaughn Cordle of AirlineForecasts LLC/QUOTE]

This guy made the quote. I "assume" he's not affiliated with WN.

The News has no animosity towards any airline. I believe they favor WN and AA, more than than they disfavor.
 

The Victors

Well-known member
Joined
Mar 23, 2006
Posts
455
Total Time
9:30
"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.

keep F9 as it's own airline?? Ya right....I'll buy that for a dollar.
 

Cobraair75drvr

Well-known member
Joined
Nov 13, 2004
Posts
735
Total Time
12000+
Remember Vaughn Cordle is a ********************ing SCAB and a so called aviation analcyst. The only way he gets qouted is by saying what the business editors want to hear. And that is that pilots are overpaid. Never once have I read an article/qoute from this douch that he is not knocking pilot costs. But then again what do you expect from a worthless, no good, dishonorable SCAB.



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./QUOTE]

Absolute BS.
 

vixin

Well-known member
Joined
Jun 7, 2002
Posts
920
Total Time
15000
Shoot, the Dallas news certainly does not favor SWA.
 

Skybus

Well-known member
Joined
Sep 28, 2005
Posts
178
Total Time
lots
Grease it up boys, its gonna be comming hard and dry. OUCH!!
 

Hugh Johnson

Well-known member
Joined
Apr 28, 2004
Posts
684
Total Time
Yep
Like Frontier had a choice. Didn't the BK judge award it after WN pulled their offer?
 

General Lee

Well-known member
Joined
Aug 24, 2002
Posts
20,442
Total Time
A lot
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.


Wow, those boys in Texas need to learn how to negotiate. Next thing you know they will just give their pilots anything they want in a new TA........ Talk about a slam. It's good to know this if there are ever any other bids for anything else. Bedford and his team out thumped Gary Kelly....


Bye Bye--General Lee
 

Bigoober

Well-known member
Joined
May 19, 2004
Posts
222
Total Time
5000
Ever thought that this was just a bargaining chip for management's side in the 'revised' TA.
 
Top