NEW YORK (The Deal) -- Republic Airways Holdings (RJET) on Tuesday, Oct. 1, said it has a deal in place to sell its Frontier Airlines unit to Indigo Partners LLC for $145 million in cash and assumed debt, but the parties still have significant issues to resolve before Frontier is free to fly solo.
Terms of the deal call for Phoenix-based Indigo to acquire Frontier for $36 million in cash, with the newly independent company retaining about $109 million in debt. Indigo said it will also invest an unspecified amount directly into Frontier after closing, and Frontier will assume Republic's Airbus new jet order.
Republic has had Frontier on the block since November 2011, and has been in talks with Indigo since the summer. The company had hoped to announce a transaction by its mid-September annual meeting, but the deadline to sign an agreement was extended to Sept. 30 to allow Indigo time to resolve outstanding issues.
There is still work to be done. Indigo was unable to resolve thorny equity rights issues with Frontier's flight attendants and pilots. As part of the deal, the private-equity fund has until Oct. 31 to secure necessary agreements with labor.The work groups were granted equity rights in Frontier as part of a 2011 restructuring of the airline, but Indigo according to sources has been seeking to alter the terms of those equity agreements as part of the deal. Indigo also must deal with ongoing disputes between Frontier's former pilot union and the Teamsters, who represent Republic pilots. Deal sources say that Indigo was stymied in efforts to resolve issues with the Association of Flight Attendants (AFA) and FAPAInvest LLC, the fiduciary for the pilot equity interest, but decided to sign an agreement before the Sept. 30 deadline instead of walking away. The private-equity firm has reason to hope the issues can be worked out in the weeks to come: The Teamsters last Friday filed a request to expedite litigation over the concessions for equity agreement between Frontier and the pilots and to clarify representation at Frontier. The AFA told members last week it was not meeting with Frontier again until Oct. 9 to allow time for the airline to negotiate with pilots.
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