Frontier Airlines
Putting an end to rumors over the past few months, Indigo Frontier Group Holdings—the parent company of Frontier Airlines—filed the preliminary registration form for an initial public offering with the U.S. Securities and Exchange Commission on March 31. Frontier will trade under the ticker “FRNT.” It wants to raise $100 million through the offering. However, Frontier hasn’t specified the number of shares that would be on sale or the price of the offer. The timing also isn’t clear, although it’s speculated to take place during 2Q17.
It’s the first IPO filing by a US airline in three years. The last IPO was by Virgin America in 2014. Since then, it has been acquired by Alaska Air (ALK). However, Brazilian airline Azul also filed for an IPO earlier in the year.
Use of IPO proceeds
According to the S-1 filing, Frontier plans to use the IPO proceeds to “fund into a trust the expected cash portion of our obligations under the Pilot Phantom Equity Agreement for the benefit of the Participating Pilots in connection with the completion of this offering.” The remaining funds will be used for other corporate purposes.
However, all of the proceeds will not go to the company. William Franke, who owns 99.3% or 5.2 million shares of Frontier’s outstanding shares, will sell a portion of his shares.
Series overview
In this series, we’ll discuss Frontier Airlines’ history. We’ll look at its financials and the IPO means for ultra-low-cost carriers.
Investors can gain exposure to the iShares Transportation Average ETF (IYT), which invests 23% of its portfolio in airlines. It invests 5.5% of its holdings in Alaska Airlines (ALK), 5.3% in United Continental (UAL), 3.8% in Southwest Airlines (LUV), 3.6% in Delta Air Lines (DAL), and 3.4% in American Airlines (AAL).
Traded in the 2000s
It isn’t the first time that Frontier Airlines will be traded publicly. It was listed on the NASDAQ stock exchange in the early 2000s and it traded under the symbol “FRNT.” However, it couldn’t cope with rising fuel and labor costs. It filed for bankruptcy protection in 2008.
Bankruptcy
In 2009, Frontier was brought out of bankruptcy by Republic Airways. Republic Airways provided regional carrier service for legacy players Delta Air Lines (DAL) and United Continental (UAL). Republic had to file for bankruptcy in 1Q16. It’s expected to come out of bankruptcy in 1Q17. In October 2013, Republic Airways sold Frontier to Indigo Partners for a deal valued at $145 million—$36 million in cash and $109 million debt.
Shift in business model
Indigo Partners was co-founded and led by William Franke, who was Spirit Airlines’ (SAVE) former chairman. He’s also known as the pioneer of the ultra-low-cost airline model. It wasn’t surprising that Frontier Airlines also went the low-cost carrier way.
It added extra seats to…