Southwest raises offer for Frontier by 50%

— -- Southwest Airlines increased its bid to acquire bankrupt Frontier Airlines by 50% on Monday in an effort to win a court auction for Frontier's assets on Thursday.

Republic Airways Holdings agreed earlier this summer to buy Frontier and its Lynx regional carrier subsidiary for $108.8 million.

The court approved that offer, pending an auction. Southwest is the only other bidder.

By raising its bid from an earlier qualifying offer of $113.6 million and by including the Lynx unit in it, Southwest is trying to win support from Frontier's creditors for its plan to phase out Frontier as an airline.

Southwest said its plans include rejecting the leases on 11 of Frontier's 51 jets, though enough Frontier employees would be retained to operate the remaining 40 planes under the Frontier name for about two years. Those remaining Airbuses then would be phased out and replaced by Southwest Boeing 737s.

Frontier then would cease to exist, although many employees would get the chance to join Southwest.

Southwest Executive Vice Presidents Ron Ricks and Bob Jordan said they expect Southwest's operations in Denver, Frontier's home, to grow quickly, and eventually exceed what the two carriers have combined there today.

Republic, parent of a string of regional carriers that operate under the brands of major airlines, is Frontier's largest creditor.

It stands to benefit either from gaining ownership of Frontier or by receiving cash from Southwest if Southwest's bid prevails.

Southwest's bid includes a new debtor-in-possession loan for $50 million that would replace Republic's existing $40 million loan to Frontier.

If Southwest wins, Republic also would get a fee of $3.5 million to $4 million for breaking up its deal to buy Frontier. And it would get a payout of about $20 million on its unsecured claim against Frontier.

By including Lynx in its bid, Southwest also is opening the door to a potential partnership with Republic, which could either buy Lynx from Southwest and operate it under a marketing agreement, or contract to operate Lynx for Southwest.