Denver's homegrown carrier, Frontier Airlines, is attracting interest from two potential suitors as parent company Republic Airways seeks to sell it off.
Phoenix-based Indigo Partners LLC and Anchorage Capital Group of New York City are in discussions with Republic to acquire Frontier, according to Dow Jones Newswires.
Dow Jones cited unnamed people close to the negotiations as saying that talks are at an early stage and could fall apart.
Republic has been shopping Frontier since 2011, when Republic announced that it intended to spin off the Denver carrier.
Indianapolis-based Republic bought Frontier out of bankruptcy in 2009 for $109 million, plus the assumption of $1 billion in debt and aircraft lease obligations.
A prospective buyer might pay up to $50 million for Frontier, then invest up to an additional $150 million to recapitalize the airline. It would also take on the carrier's debt, placing the total value of the deal at roughly $1 billion, according to Dow Jones.
William Franke, managing partner of Indigo, said he could not comment on his company's reported interest in Frontier.
"I can't even tell you if we are or aren't a bidder," said Franke, the former CEO of America West Airlines. "We generally try to stay under the radar. But we look at opportunities from time to time in the airline sector."
Indigo formerly was the controlling shareholder of low-cost carrier Spirit Airlines. Indigo now owns a 49 percent stake in Wizz Air Hungary Airlines and is a major shareholder in Mexico-based Volaris Airlines, which launched service from Mexico City to Denver four months ago.
"At Indigo, they're very smart people, so if they see value in Frontier, there must be something there," said airline analyst Ray Neidl.
Unlike Indigo, Anchorage Capital Group does not specialize in aviation, but has experience with airline investing, including a stake in Spirit. Anchorage Capital is known for trading debt of troubled companies and sometimes taking ownership of them through financial restructuring or bankruptcies.
A Republic spokesman said the company "does not comment on rumors or market speculation."
Analysts said Frontier's improving financial performance after a series of cost-cutting moves makes the carrier a more attractive takeover target.
"The reason that Frontier is still around is that they've now got a good cost structure," said aviation analyst George Hamlin of Fairfax, Va.-based Hamlin Transportation Consulting. "They're survivors — they've got that going for them."
Frontier initially was a money-loser for Republic but has improved its finances after restructuring actions that included cutting unprofitable flights and returning some of its leased aircraft.
Frontier had 2012 income before taxes of $23.9 million compared with a 2011 loss of $95.3 million. Revenue grew from $1.3 billion in 2011 to $1.4 billion last year.
Republic carries long-term debt of $2.1 billion, much of it incurred from its acquisition of Frontier.
James Simmons, professor of aviation and aerospace science at Metropolitan State University of Denver, speculated that a Frontier buyer might also target JetBlue, which, like Frontier, operates a fleet of Airbus aircraft. That combination could give an investor significant economies of scale, he said.
A buyer would also assume hundreds of millions of dollars of liabilities. Republic might also retain a minority stake in Frontier, people familiar with the deal said. The details surrounding any deal remain fluid and could change as negotiations progress.
Republic, a publicly traded carrier that flies small aircraft on behalf of large airlines, has said it acquired Frontier because it wanted to try running a brand-name carrier in the hopes it could offset shrinking margins in its core business.
But Frontier lost $148 million on a pretax basis during its first two years owned by Republic as high fuel prices squeezed the industry.
Republic, which never had to worry about fuel prices since larger airlines paid those bills, lost $165.6 million the first two full years owning Frontier, according to securities filings.
Southwest Airlines has surpassed Frontier in the share of total departing passengers from Frontier's main hub at Denver International Airport, according to airport data.
Republic in April 2012 announced that it had hired bankers at Barclays Capital to seek buyers for Frontier.
Frontier's fortunes have recently improved, partly because of a significant restructuring effort led by Republic CEO Bryan Bedford that included union givebacks, changes in the carrier's fleet and deep cuts to its schedule.
Frontier has 6,900 flights scheduled this month, down nearly a third from a year ago, according to Innovata LLC, which tracks airline schedule data. The changes helped Frontier swing to a $24 million pretax profit in 2012 on $1.4 billion in revenue.
Frontier carried 107 million passengers last year, with about 40 percent of its flights beginning in Denver, where it is the No. 3 carrier after United Continental Holdings Inc. and Southwest.
Indigo bought Spirit Airlines Inc. in 2006. As chairman, Franke transformed it into a so-called "ultra-low-cost" airline and one of the fastest growing carriers in the U.S.
In addition to Franke's current or former holdings in Spirit, Singapore-based Tiger Airways, Wizz Air and Volaris, Franke has partnered with TPG founder David Bonderman on investments such as Ryanair Holdings PLC, a leading discount airline based in Ireland.
Franke hired US Airways Group Inc. CEO Doug Parker as finance chief at America West before it merged with US Airways.
Finding buyers for Frontier has looked challenging from the beginning. In early 2012, Republic's Bedford said in an interview with The Wall Street Journal that airlines that would fit well with Frontier — including JetBlue Airways Corp. and Spirit — had shown little interest and that the chances another airline would buy Frontier were "very, very low."
Steve Raabe: 303-954-1948, email@example.com or twitter.com/steveraabedp
Dow Jones Newswires contributed to this report.