Republic, LH Continue Empire Building; Ovenight News

After investing heavily in partner US Airways as well as such failing carriers as Midwest, Mokulele and Frontier airlines, Republic Airways Holdings had taken the next step, bidding to acquire 100% of Frontier for $108.75 million, take it out of bankruptcy and operate it as one of its many subsidiaries. The regional airline giant, second only to SkyWest in size, will serve as equity sponsor for Frontier’s reorganization plan.

Meanwhile, Lufthansa not only received permission to acquire Brussels Airlines, after a string of similar acquisitions, it reached an out-of-court settlement to close its pending deal with bmi. But not so fast, says Virgin Group which wants to buy bmi, according to Richard Branson. In a Reuters report, Branson was speaking on a flight to New York from London and said he plans to talk with Lufthansa about bmi, which has long been on the carrier's acquisition list for the 11% of the slots it owns at Heathrow. The smaller carrier would also provide short-haul service to Virgin's long-haul model. "A discussion doesn't cost anything. I am sure we'll have a discussion," Branson said.

The proposed acquisitions come as Republic’s net income is dropping and Lufthansa reduced its profit picture for the year to a loss. The German airline is struggling to avoid an operating loss in its fiscal year. It cited the continuing traffic declines which will likely mean a 20% revenue decline this year. It reported a net loss of €256 million in the first quarter. For Republic, during the first quarter, net income was $2.2 million which dropped 89.3% from the $20.2 million posted in the year-ago period proving that airline execs can boast all they want about the guarantees associated with capacity purchase contracts, they still can’t defy the law’s of gravity in a crisis. Related Story

Republic-Frontier
The proposed plan of reorganization provides for general unsecured creditors to receive $28.75 million in cash. An additional $40 million of the sale proceeds would be applied as repayment of the outstanding DIP loan. Stockholders would get nothing.

The plan needs court approval with a hearing set for July 13. If approved and completed, the plan will result in Frontier’s successful exit from Chapter 11. Frontier, and regional subsidiary Lynx Aviation, would become wholly owned subsidiary of Republic Airways, retaining their names and joining Chautauqua Airlines, Republic Airlines and Shuttle America in the RAH stable.

The move comes exactly on time, as predicted by Frontier President Sean Menke in his last conference call when he told analysts a deal must happen by the end of June if the airline were to honor its promise to repay Republic loans by December 1. The airline entered bankruptcy in April 2008.

“Our restructuring efforts have positioned us to consistently make money in the most competitive market in the country and in the face of the most trying economic times,” Menke said in April, adding it proved that “maintaining our low cost structure allows the operation to buck industry trends and make money in a difficult revenue environment.”

Frontier, at the end of April reported six consecutive months of operating profits as well as two consecutive quarters. Related Story

“We believe this agreement represents a new beginning for Frontier, positioning it to build on its recent successes and strengthen the Frontier brand for the benefit of employees and the customers and communities it serves,” Bryan Bedford, chairman, president and CEO of Republic Airways, said. “Thanks to the hard work of its employees, Frontier has made tremendous strides during its restructuring process, recently posting its sixth straight monthly operating profit despite challenging economic conditions. Adding Frontier to the Republic portfolio of operating companies is an opportunity for both companies to build on recent successes and strengthen the Republic organization for the benefit of all stakeholders.”

Frontier’s proposed plan of reorganization was filed yesterday with the U.S. Bankruptcy Court for the Southern District of New York. Frontier has also filed a motion to approve the investment agreement with Republic, which is subject to higher and better proposals under a court-supervised auction. A hearing at which Frontier will seek court approval of the investment agreement and proposed auction procedures has been scheduled for July 13, 2009. Frontier currently expects to conclude the auction process and emerge from Chapter 11 during the fall of 2009.

“This agreement represents a major milestone in our ongoing efforts to position Frontier to emerge from bankruptcy as a competitive, sustainable airline,” Sean Menke, Frontier president/CEO, said in a statement. “We are pleased that this agreement allows our customers and communities to continue to receive the outstanding service for which Frontier is known, while preserving the jobs of most Frontier employees.”

The agreement, which falls short of Frontier's exit goal of between $125 and $150 million, is the culmination of a rocky relationship between the two carriers. Menke had said it would need the higher figures to remain sustainable but that was as a free-standing entity, not as a subsidiary of the nation’s second largest regional operator.

After signing a contract to provide feeder services to Frontier using 12 aircraft, the low-cost carrier reneged on the deal as it filed for bankruptcy, prompting the threat of a $260 million lawsuit from Republic. It had earlier cancelled a similar relationship with Horizon Airlines which forced the Seattle-based company to reorganize. However, Republic began investing in Frontier instead with debtor-in-possession financing in March of $40 million. Republic has a total $150 million claim against the company.

LH et al
The European Commission approved the acquisition of SN Airholding (SNAH) which owns Brussels Airlines, after Lufthansa agreed to eliminate competitive concerns by making slots available for new entrants on four routes that would have otherwise been monopoly routes for the two carriers. The routes include Brussels to Hamburg and Munich as well as Brussels to Frankfurt and Zurich. The Brussels deal is valued at up to €250 million.

Lufthansa also controls Swiss, Air Dolomiti, Eurowings and Germanwings. Lufthansa's proposal to acquire bmi was cleared by the European Commission in May. The Commission is still investigating its proposed acquisition of Austrian Airines. It has also taken a stake in JetBlue.

The bmi agreement ends a month’s-long dispute between the two companies over the value of the British airline. LH already owns a 30%-minus-one share, 20% of which was taken a decade ago, but wanted to acquire Sir Michael Bishop’s 50%-plus-one share. Bishop, who exercised a put option last October which also involved SAS AB owner of the remaining 20% share, is co-founder of British Midlands Airways Ltd. That put option required a £298 million payment for Bishop’s stake which Lufthansa refused to pay, since bmi had not met its fiscal performance targets. It wanted Bishop to inject another £100m. Once the deal is done, Lufthansa will own an 80% stake and is negotiating a final deal with SAS for the remaining shares.

Lufthansa pledged to pay £223 million ($367.9 million) just over half of £400 the carrier expected to pay. LH will pay £175 million to Bishop to cancel the put option. UK holding company LHBD Holding Ltd, in which Lufthansa will own a 35% share, will acquire Bishop’s shares for about £48 million and ultimately own 100% of LHBD once all the bmi traffic rights have been acquired. The traffic rights are in jeopardy if the UK decides bmi is being acquired by a foreign carrier. The British airline holds 11% of the takeoff and landing slots at Heathrow.

Overnight News
Airbus says Chinese bank could provide plane financing

Jet Airways Defers Delivery Of Boeing Planes

Raytheon Tests Carbon Sequestration

Un-Clear: Registered Traveler Company Shuts Down

Branson rules out bid for BA

Shannon to seek €2m compensation from Ryanair over cut in services

BA may start charging for peanuts and wine

B.A. Pressing Ahead With All-Business-Class

AIA, ASD Release Joint Statement On Protectionism

Nigeria: Airlines Owe NAHCo, SAHCOL N1 Billion Ground Handling Debt

Airline to slash costs by 15%

Nigeria: Abuja Airport - FAAN Rakes in N1.9 Billion

The night the crew saved my flight from hell

Virgin Atlantic: Not Interested In Business Class-Only Flights

SkyEurope gets "protection from creditors"

ELFAA slams injunction against Brussels terminal

'09 global growth forecast cut

OpenSkies misses first year targets

Senate statement of “Families of Continental Flight 3407‟

Qantas jet in the dark on turbulence risk

Clickair brand axed in Vueling merger

Should pilot age limits be lowered?

Nigeria: Under the Plane's Belly

Malév Hungarian Airlines Pilots receive support from IFALPA in industrial action

South African Airways builds capacity in West Africa, strengthens Perth and Buenos Aires

$50 fares for stranded Jetstar passengers

Is Cap-and-Trade Legislation Really Bait-and-Switch?

Not-So-Angry Thoughts on Climate Policy

ASTA: Congress May Weigh in on Fee Transparency

Aviation group starts youngsters flying

Air India should be privatized

AAI refuses to give credit to Kingfisher

Codeshare partnership expanded between Malaysia Airlines and SriLankan Airlines

'Air India playing foul'

BA To Pull Gatwick's Last NY Route, Push Premium Cabins

Could new AA cuts make Southwest No. 1 in St. Louis?

Watch Boeing 787's first flight here, says Future of Flight

Spirit Airlines is cheap, and CEO Ben Baldanza's proud of it

Aerospace milestone: First Chinese-made Airbus jet

Real Risk of Wireless on Planes: The Tehran Effect

Southwest to test prices for Internet

Japan's newest airport needs over 1m passengers every year

Bombardier, union said to be far apart as Dehavilland plant strike deadline passes

Air Canada reaches deal with attendants

Airport Projects Delayed or Canceled

BA shares plunge as Richard Branson puts wind up investors

Lightning strikes Virgin Blue aircraft


BA 'considers sale or closure of Open Skies'

U.S. airlines get thumbs down from frequent travelers