Updated September 27, 2013, 10:24 p.m. ET
By JACK NICAS And MIKE SPECTOR
The Wall Street Journal
The long-awaited sale of Frontier Airlines is in jeopardy because of stalled negotiations between its pilots and the prospective buyer, Indigo Partners LLC, according to two people familiar with the investment firm's thinking.
Indigo and Frontier's parent company, Republic Airways Holdings Inc., are not expected to reach a deal by Monday, when Indigo's exclusivity period is set to expire, according to one of these people.
Republic has been trying for almost two years to off load Frontier, a Denver-based airline that carried 5.1 million passengers in the first half of this year.
Earlier this summer, Republic entered into exclusive talks with Indigo, the investment firm of former America West Airlines Chief Executive Bill Franke, and the two sides have made significant progress toward a transaction, these people said. But stalled negotiations with Frontier pilots are now endangering the deal, they said.
In 2011, Frontier agreed to give its pilots an equity stake in the company or a $7.2 million cash settlement in exchange for cuts to their pay and benefits, according to regulatory filings. Indigo would like to terminate or reduce promised equity stakes for Frontier's pilots and flight attendants, these people and another person familiar with the talks said.
Mr. Franke has been a lead investor in several ultralow-cost airlines, which have found success by cutting costs and lowering fares with tactics like fitting more seats onto planes and charging for extras that previously were free. He helped lead the transformation of Spirit Airlines Inc. into an ultralow-cost airline. If successful in his bid for Frontier, Mr. Franke would turn the 52-jet airline into a third such carrier for the U.S., joining Spirit and Allegiant Travel Co.
Two weeks ago, Republic extended Indigo's exclusive negotiating period for Frontier to Sept. 30. Republic Chairman Bryan Bedford said then that it had "made substantial progress" toward a deal with the buyer and believed that "the additional time will allow for the process to be completed."
Republic could extend the exclusivity deadline further. If it doesn't, negotiations could continue past Monday, but other bidders could step in.
Further complicating talks is a complex dispute over which union represents Frontier's pilots and whether the agreement that promised the equity stakes is valid. The 2011 deal was negotiated by the Frontier Airlines Pilot Association. Weeks later, the International Brotherhood of Teamsters replaced the association as the aviators' representative and sued Frontier in federal court to annul the agreement that promised the equity stake, according to the filings. Litigation is continuing.
Indigo is negotiating with the Frontier Airlines Pilots Association, the people said. Craig Moffatt, head of the local Teamsters chapter, said his union legally represents all Republic pilots, including Frontier's. "Indigo is talking to the wrong pilots," he said.
Indigo is also far apart in talks over the equity stake with Frontier's flight attendants, though the two sides are negotiating, people familiar with the talks said.
The exact terms of a possible deal are up in the air because of the ongoing labor negotiations, though any deal would likely include Indigo-owned Frontier assuming hundreds of millions of dollars of liabilities, according to the two people familiar with Indigo's thinking. One of the people said that in addition to any liabilities, Indigo would pay between $20 million and $50 million to Republic for Frontier.
Source: http://online.wsj.com
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