Southwest said it submitted a bid of about $170 million for Frontier yesterday, nearly 50% more than in the original $113.6 million nonbinding offer that was the minimum required for the airline to qualify for the auction process.

Today is the deadline for submitting binding offers under the bankruptcy court-approved auction process for Frontier, which has been operating under Chapter 11 bankruptcy protection since April 2008.

There was no immediate word on whether Republic, which originally offered $108.8 million under a deal approved by the bankruptcy court pending the auction process, plans to submit a revised, bigger offer under the auction process later this week. Republic declined to comment.

Southwest said its bid would increase the amount paid on unsecured claims, paying 12 cents on dollar as compared to 8.7 cents under Republic’s original offer. (That means if Republic loses the bid, it would get about $20 million on its $150 million unsecured damage claim, as well as repayment of its $40 million debtor-in-possession loan and a $3.5 million termination fee written into its original deal with Frontier).

In addition to repaying the Republic DIP, Southwest said it would immediately provide Frontier with an additional $50 million in capital.

Under Southwest’s plan, it would acquire about 80% of Frontier’s existing Airbus fleet, or about 40 aircraft. Initially, Frontier would operate its Airbus aircraft as it does today, with a planned retirement of the Airbus fleet and transition to Southwest’s Boeing 737s over roughly 24 months.

Southwest also plans to keep Lynx in operation indefinitely — somewhat of a surprise, given Southwest’s previous antipathy to operating a regional service. Southwest officials said they would decide this fall, in the course of closing the transaction, whether Southwest would operate the service itself or contract with a regional carrier.

Ron Ricks, Southwest’s executive VP-corporate services, said Southwest came to the decision to keep Lynx over the course of the past 10 days, after submitting its nonbinding offer.

“Lynx is a very popular part of the brand and serves a lot of important, smaller communities,” Ricks said. He said Southwest’s network would feed more traffic to Lynx, and Lynx would feed more traffic to Southwest.

Southwest also said it would maintain all of Frontier’s existing markets, despite the initial reduction in fleet size, and would add new nonstop routes not currently served by either Southwest or Frontier. Keeping the existing markets means Southwest would enter some markets it has not been in previously, including Atlanta and Mexico. It also would get access to Washington National if it is allowed to retain Frontier’s six slots there.

Ricks, however, said Southwest will not go through with the deal if the Southwest and Frontier unions cannot come to an agreement — outside of binding arbitration — on how to merge the carrier seniority lists. That’s written into the agreement, he said.

“We do not want to proceed if our employees are not behind us,” said Ricks, who added that the Southwest and Frontier pilot unions already have begun discussions.

Ricks said he is not expecting the auction for Frontier to begin until Aug. 13. The airline, its advisers and the bankruptcy case’s creditors committee probably will spend Aug. 11 studying the bid, he said, and Southwest officials will be in New York to make a presentation to Frontier and the creditors committee on Aug. 12.

Photo credit: Southwest