Frontier to Become Subsidiary of Republic

Only a year ago, I would have thought Frontier’s chances of exiting bankruptcy intact were slim to none. But yesterday, Frontier announced that it has arranged exit financing and it will emerge as a subsidiary of . . . Republic?!?

My brain hurts trying to process exactly what’s happening here, but one thing is clear. Frontier will sell all of its equity to Republic, primarily a regional carrier, for $108.75 million, assuming the plan is accepted by the court. The airline will become a subsidiary in Republic’s growing web of airline involvement. It’s no surprise that Republic is involved, especially since they were the source of much of the debtor-in-possession (DIP) financing, but I am surprised to see that Republic will become the sole owner of the airline.

I’ve received a bunch of emails on the subject already and the big question being asked is . . . what does this mean for Republic’s other contracts? Republic and its subsidiary airlines currently operate for all big 5 legacy carriers as well as Midwest.

Clearly the big airline partners aren’t going to be happy about the fact that they will now effectively be funding a competitor every time they pay for regional services. United will be the most livid since it is competing directly with Frontier in the Denver hub. Republic even operates United Express flights in markets like Denver - Atlanta and Denver - Minneapolis/St Paul, routes on which Frontier will compete head-to-head.

So will the legacies run away screaming? I’m going to assume that Republic did its homework and structured the deal in a way that won’t allow the legacies to leave without a fight. (Though I have to imagine that direct head-to-head competition on a single route will be problematic.) Of course, that doesn’t mean the legacies aren’t looking for ways out of their contracts as we speak. This will create a huge headache for Republic’s legal team, I’d guess, as challenges are likely to come in.

Certainly this is good news for Frontier. It will live to see another day, and that’s something very few would have predicted a year ago. But what it means for Republic is a whole different story.