Republic Airways Holdings, majority owner of Mokulele Airlines, won the bankruptcy court auction for Frontier Airlines yesterday, buying the Denver-based carrier for almost $108.8 million after Southwest Airlines Co.'s rival bid was rejected.

Southwest said its $170 million bid was deemed unacceptable because the carrier would not back down from a requirement that its pilots and Frontier's work out their integration before the deal would close.

Frontier said Republic made several improvements to its original June bid and has already received federal antitrust approval for the deal. A bankruptcy judge had approved Republic's earlier bid but left open the door for another bidder.

Frontier said the plan calls for it and regional unit Lynx “;to maintain normal operations”; as a stand-alone Republic subsidiary. Because of that, Denver travelers could see little change. But the deal is huge for Republic.

Until now, Indianapolis-based Republic has strictly been an operator of regional jets for big airlines like Delta, United and US Airways. Now, between Frontier and its recent purchase of Milwaukee-based Midwest Airlines, it's jumping into the business of competing for passengers and setting its own schedules and prices.

That might not be so bad, said Jesup & Lamont Securities Co. airline analyst Helane Becker.

Republic is well run, she said, and anyway the old regional airline model is suffering as big carriers squeeze their regional partners and cut capacity, including regional flights.

“;The major airlines can just crush these guys like a bug”; in the regional business, she said.

Republic has also invested nearly $20 million in Mokulele Airlines of Hawaii, owning an 89 percent stake in the interisland carrier.

Republic's bid has it buying all of Frontier Holdings when that company emerges from Chapter 11 protection, which is expected later this year. It also agreed to waive any recovery on its $150 million general unsecured claim. The plan calls for current Frontier shareholders to receive nothing.

“;Frontier has made impressive strides in returning to sustained profitability in a challenging and uncertain economic environment,”; Republic Chairman, President and CEO Bryan Bedford said in a written statement.

Republic had loaned money to Frontier during its Chapter 11 reorganization, which began in April 2008. In June it offered to buy Frontier out of bankruptcy.

Southwest's surprise bid, which eventually reached $170 million including repayment of Republic's loan, looked likely to win. Southwest had enough cash to simply write a check for Frontier, and it had the motive. Southwest has turned Denver into one of its key airports, but it faced strong competition both from Frontier and UAL Corp.'s United, which has a hub there.

In a written statement, Southwest Chairman, President and CEO Gary Kelly called the potential Frontier deal “;a great opportunity that required us to act fast. A lot of people worked very hard with every intention of making this work.”;