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Republic Airways Holdings Inc. is not a household name in the airline business. But the company, which operates regional jets under the brands of larger partners, is turning some heads in the industry thanks to a pair of recent deals where the airline used its relatively healthy balance sheet to protect its interests in hopes of better surviving the current downturn.
Republic of Indianapolis on Wednesday committed upwards of $25 million in loans to struggling Midwest Air Group Inc., a private equity-backed carrier scrambling to raise cash to avoid a Chapter 11 filing. While there is of course substantial risk in investing in a troubled carrier slammed by high oil prices and facing unions angered by proposed concessions, the deal has some definite upsides for Republic. In return for the cash, Midwest has agreed to replace much of its flying with 12 Republic jets that will soon operate under the Midwest Connect banner. The jets involved have been grounded since Frontier Airlines Holdings Inc. filed for bankruptcy and ended its relationship with Republic, and the golden rule of the airline industry is that jets never make money parked on the ground. Republic's new relationship with Midwest returns those jets to revenue-producing service, and allows it to at least temporarily recall more than 100 pilots and flight attendants furloughed after Frontier ended its agreement. The downside for Republic appears limited. The company in its press release explaining the deal notes that Midwest will pay for all of the fuel that goes into the jets, eliminating one of the biggest variable costs to an airline. Republic said that the one-year term loan -- which includes $15 million up-front and another $10 million if Midwest hits milestones in its restructuring -- is collateralized by unencumbered assets "and generally senior to other lender's security position," giving the airline a better chance of getting repaid. This isn't the first time Republic has thrown its financial weight around to protect its interests. The carrier last month joined a consortium that committed up to $75 million in debtor-in-possession financing to Frontier, despite that airline's termination of its Republic contract, besting an agreement Frontier had forged with private equity firm Perseus LLC. Republic chairman and CEO Bryan Bedford explained to analysts and investors that the airline moved in order to protect its rights as a Frontier creditor.
In difficult times, cash is king, and the companies that have it to spare tend to come out on top. While it is far from certain what ultimately will become of Midwest or Frontier, Republic in recent months has used a pair of under-the-radar deals with those companies to help ensure that it emerges from the current downturn with as few bruises as possible. - Lou Whiteman See TheDeal.com story on Midwest's bailout Categories Deal Video
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