Southwest Airlines Co.’s bid to acquire smaller rival Frontier Airlines Holdings Inc. has hit turbulence after pilots from the two carriers failed to quickly clinch a deal over seniority rights.
A bankruptcy-court auction for Denver-based Frontier got underway Thursday after Southwest submitted a $170 million bid on Monday for the low-cost carrier. Southwest is competing in the auction against Republic Airways Holdings Inc., which submitted an earlier bid of $108.75 million.
But Dallas-based Southwest, the largest U.S. discount carrier by traffic, has said it will only buy Frontier if unionized pilots from both airlines reach agreement on seniority, which affects pay and job protections.
Representatives from the Southwest Airlines Pilots’ Association and the Frontier Airlines Pilots Association negotiated until midnight Wednesday but were unable to strike a pact, Neal Hanks, a spokesman for Southwest’s 5900 unionized pilots, said Thursday.
A Southwest spokeswoman declined to comment on the pilot negotiations. But she said Southwest continues to participate in the Frontier bankruptcy auction, which is scheduled to conclude by Monday. Frontier filed for bankruptcy protection in April 2008.
Mr. Hanks said Southwest’s pilot union proposed Frontier’s pilots be placed below them in terms of seniority. Southwest pilots are open to resuming negotiations with Frontier counterparts, but a new round of formal talks hadn’t yet been scheduled, he added.
Frontier’s pilot union, which has 600 members, didn’t return calls Thursday seeking comment. A spokesman for Frontier also declined to comment.
John Stemmler, the president of Frontier’s pilot union, told The Wall Street Journal in late July that seniority would be “the biggest issue” for pilots in any tie-up with Southwest.
Southwest is 10 times larger than Frontier, which has a fleet of 51 airplanes. But Southwest is eager to find new sources of growth amid a stiff recession. After nearly four decades of rapid expansion, Southwest’s revenue fell 7.9% to $4.97 billion in the first half of 2009 from the year-earlier period.
For the deal to go through, Southwest also needs to secure approval from antitrust authorities. By acquiring Frontier, Southwest would more than double its presence at Denver International Airport and eliminate a low-cost rival.
Indianapolis-based Republic is a holding company for three regional airlines. The company, which had $320 million in second-quarter revenue, believes Frontier would help Republic diversify beyond its current business model as a subcontractor to big airlines.
Southwest is negotiating a separate employment contract with its pilots after they narrowly rejected the airline’s five-year proposal in a June vote. Mr. Hanks, the pilot union spokesman, said talks continued with the company Wednesday and that the union is hopeful a deal in those talks can be reached within a week.
The employment contract is the “top priority” for Southwest’s pilot union, which wants to wrap that up before clinching any accord with Frontier’s pilots, Mr. Hanks added.
Southwest declined to comment Thursday on the status of those talks.