Bloomberg News

Republic Studies Jet, Flight-Slot Sales to Reap $113 Million

November 01, 2011

(Updates with researcher’s comment in eighth paragraph.)

Oct. 27 (Bloomberg) -- Republic Airways Holdings Inc. is studying whether to sell planes and airport landing rights in Washington to help raise about $113 million in a second round of restructuring at its unprofitable Frontier Airlines unit.

The plan also includes removing a lavatory to make room for three more seats on some of the carrier’s Airbus SAS jets and indefinitely deferring some aircraft purchases from Embraer SA, Chief Executive Officer Bryan Bedford told employees in a memo obtained by Bloomberg News.

Republic came up $15 million short of its goal for an unrestricted cash reserve of at least $200 million in the third quarter, Bedford wrote. The Indianapolis-based airline is projected to post a profit when it reports results next month, based on estimates from seven analysts surveyed by Bloomberg.

“Absent asset sales, we will be even further below that target by the end of the year,” Bedford said. “So again, we have to make tough choices, and we will.”

Republic isn’t discussing Bedford’s memo because it was an internal letter to employees and not intended for distribution outside the company, Peter Kowalchuk, a spokesman, said yesterday in an e-mail.

Bedford took on a new business model by operating Frontier under its own brand after Republic bought the Denver-based airline out of bankruptcy in October 2009 for $108.8 million. Republic’s previous focus had been regional flights for carriers such as Delta Air Lines Inc. and American Airlines.

Shares Gain

Republic rose 5.2 percent to $2.68 at 12:10 p.m. in New York trading. The shares fell 65 percent this year through yesterday.

“Whether desperation or necessity, Republic’s plans today underscore the limited number of options it has to shore up a very fragile balance sheet,” said William Swelbar, a research engineer at Massachusetts Institute of Technology’s air transportation center in Cambridge. “The fact that shares are responding favorably to today’s plan does signal that shareholders are yearning for any news or plans that will reduce Frontier’s drag.”

Bedford told employees that Republic is “close to completing” an initial $120 million restructuring at Frontier, including concessions from employees and vendors.

Steps under study in the new restructuring round include whether to sell flight slots at Ronald Reagan Washington National Airport valued at almost $50 million, and 10 Embraer E190 jets, for a total of about $40 million, Bedford wrote.

‘Test the Water’

“We have placed aircraft on the market for sale to test the water on cash values, but we have not made a decision to remove any aircraft as yet,” he said.

Another $20 million in cash would become available under a tentative agreement with Embraer to accept two new E190s next month under a previous order and defer the remaining jets, Bedford wrote. Embraer would return about $3 million in cash deposits to Republic, he wrote.

“Investing limited cash reserves in new aircraft is just impossible right now,” Bedford told employees.

The airline ordered six E190s in November 2010 for delivery from August through December of this year, with a “conditional” order for 18 E190 or E195 jets. Embraer declined to comment on Republic’s pending orders, said Flavia Sekles, communications director for the Sao Jose Dos Campos, Brazil- based planemaker.

Loss Streak

A quarterly profit for Republic would end a streak of three losses that began in the last three months of 2010. Republic’s 2012 business plan is being completed over the next several weeks and will go to directors for approval on Nov. 2, Bedford wrote.

Taking out one of three lavatories on Frontier Airbus A318s and A319s would let the carrier put three more passengers on each flight, boosting sales and spreading operating costs across more seats on each plane, Bedford wrote.

“We can generate much-needed extra revenue from those additional seats with a very small risk to customer satisfaction,” the CEO said.

The change would make Frontier’s jets comparable to similar-sized planes flown by Southwest Airlines Co., Allegiant Travel Co. and Spirit Airlines Inc., all of which have two bathrooms, according to the memo.

Frontier can add six seats to its larger A320 jets by switching to a “slim-line” model that also would reduce weight and fuel burn, Bedford wrote. Frontier has 41 A319s, four A318s and 14 A320s, according to its website. Republic, operating for Frontier, flies 15 E190s.

The future for four Bombardier Inc. Q400 turboprop aircraft and three E170s is being evaluated, Bedford wrote.

--With assistance from Jose Sergio Osse in Sao Paulo. Editors: Ed Dufner, Kevin Miller

To contact the reporters on this story: Mary Schlangenstein in Dallas at; Mary Jane Credeur in Atlanta at

To contact the editor responsible for this story: Ed Dufner at

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