Southwest Airlines has submitted a binding cash bid of more than $170 million to buy Frontier Airlines, Southwest revealed on Monday.
Frontier will be sold at a bankruptcy auction expected to take place Aug. 13.
Initially, Southwest had bid $113.6 million, topping a Republic Airways offer of $108.7 million.
"The number before was just a placeholder," said Ron Ricks, Southwest's corporate secretary and executive vice president of corporate services. "It wasn’t really a bid."
But Southwest executives said, part of the reason for the $170 million bid was an increase in the amount that Southwest plans to make available for unsecured claims. Southwest says its bid will provide a 30% increase for unsecured debt claims to 12 cents on the dollar.
Industry analysts said they thought Frontier was worth much more than Southwest's placeholding bid. Despite operating under Chapter 11 bankruptcy protection for more than a year, the airline has put together successive profitable quarters.
Southwest will present its offer to Frontier and the airline's creditors committee on Wednesday. Once the auction is concluded, the bankruptcy court must still approve the selection of the winning bidder. Then the Justice Department will review the bid.
"At this point, it is premature for Southwest to release complete details of its offer, which may change during the auction process before a winning bid is approved by the bankruptcy court," the airline stated.
With the bid, Southwest plans acquire approximately 80% of Frontier's existing Airbus fleet -- about 40 aircraft plus all of Lynx Aviation, Frontier's regional operation.
While Southwest plans to continue Lynx service after the 24-month transition, the low-cost carrier doesn’t know if it will run Lynx itself or get another operator.
"Initially, Frontier would operate its Airbus aircraft as it does today, with a planned retirement of the Airbus fleet and transition to Southwest's Boeing 737s over a period of approximately 24 months," the airline said.
Despite an initial fleet reduction, Southwest said it intends to maintain all existing markets and add nonstop routes from Denver.
In a memo to employees on Monday, CEO Gary Kelly said, "I have seen and read speculation and reports as to why Southwest would be interested in acquiring Frontier. Simply enough, Frontier is for sale, and purchasing them would allow us to increase our customer base in a city where we want to grow.
"If our bid is successful, we will return to growth mode in the midst of a deep recession, expand our network in Denver to include many attractive destinations that we don’t currently serve today, and offer Denver travelers a stable, low-fare airline."
