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EnigmaDude (90.49)

When is an airline not an airline?

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June 24, 2009 – Comments (5) | RELATED TICKERS: RJET

When it is Republic Airways Holdings, Inc. (RJET)  After reading the news that RJET snatched Frontier airlines from the jaws of Chapter 11 and then picked up Midwest airlines the next day, I decided to do some investigation.  The most complete and concise pitch that I have read in a long time was written by  EarningsPower   back in Feb, 2008 when the stock was selling for about $19.  One of the things that he mentioned is the notion of acquiring smaller regional airlines as part of their growth strategy:

"Assuming RJET doesn't overpay for aquisitions as well as that it will be able to integrate its aquisitions without serious difficulties, this scenario would further fuel additional upside..."

So what did they do?

Republic Airways Holdings Inc. said it agreed to acquire fellow regional carrier Midwest Airlines from TPG for $31 million, just 17 months after the private-equity giant and then-partner Northwest Airlines paid $452 million for Midwest.

That sounds like a pretty smart move to me!

And the deal with Frontier:

Republic Airways (NASDAQ:RJET) announced Tuesday that it will buy 100% of the equity of reorganized Frontier Airways (OTC:FRNTQ) to bring the company out of bankruptcy. Under the deal, which is subject to court approval, Republic will pay $108.75 million, and Frontier will become a wholly owned subsidiary of Republic Airways.

We'll have to wait and see if their deals generate more cash than debt, but so far it looks to me like they are making all the right moves!  I bought a few shares today.

5 Comments – Post Your Own

#1) On June 24, 2009 at 6:21 PM, UltraContrarian (31.50) wrote:

I bought a couple shares yesterday at noon and am up ~40%.  I don't care that much about the Frontier and Midwest deals, I bought because I thought their ongoing business was incredibly cheap and it looked like they had put in a bottom and had some good news and upward momentum.  Also a good hedge against shorting other airlines like UAUA and AMR.

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#2) On June 24, 2009 at 8:22 PM, EnigmaDude (90.49) wrote:

Ultra,

Thanks for the comment.  Many other top players also picked it at a much higher price and well before the news this week was announced.  From what I can tell there is a lot of upside potential with this stock and a company that has been making a profit for more than 30 years. I don't know if that makes it a long-term buy and hold, but I do expect the stock to outperform the market for at least the next year or three.

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#3) On June 24, 2009 at 9:11 PM, Seano67 (34.84) wrote:

Dang, RJET has shot up like a rocket the past two days. I had that one on my watchlist too. :( Not CAPS watchlist, but real life watchlist as something I was considering putting some money into. Kind of kicking myself for not doing that and missing this little two-day pop, but ahh well. I added more shares of WH and PDS instead when energy got hit so hard on Monday, and I'm pretty happy with those  purchases at those prices. :)

Anyway, good luck with your RJET.

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#4) On June 25, 2009 at 2:12 PM, dvfox5 (< 20) wrote:

Normally, when one company buys another company, the shareholders of the company being bought get something.  In the case of the Republic-Frontier deal, it's my understanding Frontier shareholders (I realize they're in bankruptsy) get NOTHING. I guess that means my 300 shares purchased for 32-cents/share are now worthless -- or soon will be. Am I wrong?

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#5) On June 25, 2009 at 4:59 PM, EnigmaDude (90.49) wrote:

Seano67 - I thought hard about PDS but had bad luck recently with other Canadian energy stocks (AAV, HTE). Good luck to you.

dvfox5 - Unfortunately it seems that you are correct in that the shares of Frontier will be worthless if the bankruptcy court approves the deal.  Here is an excerpt from their website:

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. If the plan is implemented as proposed, the company’s current equity would be extinguished and holders of that equity would not receive any recovery.

As an investor you would be one of those left "holding the bag".  That is the downside of investing in risky stocks.

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