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.
The deal, if completed, would end Republic's four year experiment to diversify itself away from providing unbranded contract service for larger carriers. Indianapolis-based Republic bought Frontier out of Chapter 11 in 2009, and added Midwest Air Group Inc. soon after in an attempt to grow a national discount brand. "This transaction is a direct result of Frontier's successful restructuring, continued cost reduction efforts and laser focus on revenue generation," Republic Chairman and CEO Bryan Bedford said in a statement. "I am confident that Frontier will enjoy future growth as Indigo continues the process to position the airline as a leading ultra-low-cost carrier in the United States." Indigo is run by one-time America West Airlines executive William A. Franke, who pioneered so-called ultralow-cost airlines with Tiger Airways Singapore Pte Ltd. in Singapore and more recently had success with Spirit Airlines of Florida. Franke sold Indigo's stake in Spirit earlier this year and now plans to continue Republic's transformation of Frontier into an ultra low-cost airline, which offers low base fares but charges for carry-on bags, beverages and other amenities that are free on other carriers. Franke in a statement highlighted the work that still needs to be done, saying Indigo is "hopeful that FAPAInvest LLC and the AFA will provide the support that is critical to closing." A Barclays team including Josh Connor, Kristin Healy, Larry Hamdan and Todd Wilson provided financial advice to Republic, with Hughes Hubbard & Reed LLP serving as legal counsel. Latham & Watkins LLP is advising Indigo. --Written by Lou Whiteman