In a bankruptcy battle for Denver-based Frontier Airlines, cash-flush Southwest Airlines looks to be the winner if it ponies up a binding bid, according to industry analysts watching the fray.
Southwest, which on Thursday submitted an initial offer of $113.6 million for Frontier, listed $2.4 billion in unrestricted cash and investments as of July 21, its second-quarter results show.
Executives for the Dallas-based carrier said last week that it could borrow on its investment-grade credit rating to acquire Frontier, which filed for Chapter 11 bankruptcy protection in April 2008.
"If you are fairly stable financially and have a pile of cash, it's a heck of a time to be out there sniffing around," said Anthony Sabino, a law professor at St. John's University in New York.
"It's a classic fire-sale situation, and they're in good position," Sabino said. "It gives them a big edge to be sitting there with $2.4 billion."
In comparison, second-quarter results announced last week by Indianapolis-based Republic Airways Holdings — the other bidder for Frontier — showed that it had $97.4 million in unrestricted cash and cash equivalents.
On June 22, Republic offered to buy all of the equity in Frontier and its subsidiary, Lynx Aviation, for $108.7 million.
The U.S. Bankruptcy Court for the Southern District of New York gave its blessing to Republic's plan on July 13 but gave other investors until Aug. 10 to submit binding bids.
Southwest officials have said they'd been studying Frontier for some time. They jumped in last week as a qualified bidder, Southwest corporate secretary Ron Ricks said, so they could comb Frontier's books before deciding to make a formal bid.
"We are in this to win," Ricks said shortly after the announcement, "and we have the resources, we think, to be successful."
But don't count Republic as a loser in the pursuit for the hand of Frontier.
"Republic can make a good return on this regardless,"
Republic, which owns Chautauqua Airlines, Republic Airlines and Shuttle America, and on Friday sealed the deal to acquire Midwest Airlines, estimates it accounts for half of the unsecured claims from Frontier creditors.
Republic extended a $40 million debtor- in-possession loan in March to Frontier and holds a $150 million unsecured claim from last year. Proceeds from the bankruptcy auction will be used to repay Republic for its investment.
Since it is a creditor, Republic representatives theoretically sit on the creditors committee that will help determine the winning bid.
"As a member of the creditor committee, they have to step away in supporting or opposing a bid," Sabino said. To be involved "would be inside dealing, so they have to be squeaky clean."
Whatever happens between now and a possible auction, likely to occur between Aug. 11-17 should Southwest enter a formal bid, it "should be lively," Sabino said.
Sabino doesn't see United Airlines, which is DIA's largest carrier with 48 percent of the market, as making a stab at Frontier.
"United is not that far removed from their own bankruptcy," Sabino said, referring to United's Chapter 11 filing in 2002.
Sabino said United also is such a huge presence at Denver International Airport that the U.S. Department of Justice would probably frown on a United-Frontier deal.
Southwest will prevail, analyst Boyd said, with Southwest and Republic having starkly different motives for the buy.
"Republic is not an airline; it's a holding company interested in getting control of a profitable airline, and that is Frontier," Boyd said. "That makes sense. It's a good value."
Southwest, Boyd said, "bluntly sees this as an opportunity to buy a competitor, and that's good business."
At least one industry analyst wonders why Republic is even in the race.
"I've never understood what Republic, a regional operator, is doing with Frontier," aviation analyst Ray Neidl said. "It makes more sense for Southwest, which wants Denver."