UPDATE 1-Republic Airways to buy Frontier in bankruptcy exit

* Frontier in $108.75 mln deal with Republic Airways

* Deal is subject to auction process, court approval

* Frontier sees bankruptcy exit in autumn as Republic unit

By Emily Chasan

NEW YORK, June 22 (Reuters) - Bankrupt U.S. regional carrier Frontier Airlines Holdings Inc (FRNTQ.PK) has reached a deal to sell itself to Republic Airways Holdings Inc (RJET.O) for $108.75 million so that it can exit bankruptcy protection.

The companies said on Monday that Republic would sponsor Frontier's bankruptcy reorganization plan as part of the deal, and that the airline could emerge from bankruptcy in autumn 2009 as a subsidiary of Republic.

The deal is subject to potential higher offers at a mid-July bankruptcy auction and to approval of the bankruptcy court.

Frontier, one of the leading U.S. regional carriers, filed for bankruptcy protection in April 2008 as the price of fuel surged and its credit card processor said it would withhold more proceeds from ticket sales.

Frontier, founded in 1994, competes with Southwest Airlines Co (LUV.N) and JetBlue Airways Corp (JBLU.O) from its hub in Denver. Republic is based in Indianapolis and runs regional flights with large airline partners under such names as Delta Connection and US Airways Express.

"This agreement represents a major milestone in our ongoing efforts to position Frontier to emerge from bankruptcy as a competitive, sustainable airline," Frontier chief executive Sean Menke said in a statement.

Frontier, which has renegotiated agreements with its union, has reported six months in a row of operating profit, despite the bankruptcy and economic recession.

Under the deal, Frontier Airlines and its Lynx Aviation unit would maintain their current names and continue operations normally, Frontier said.

When Frontier first filed for bankruptcy, investment firm Perseus LLC agreed to provide bankruptcy financing in exchange for 79.9 percent ownership of the company, but Frontier's creditors rejected that offer and came up with their own bankruptcy financing for the company instead.

Frontier filed its proposed reorganization plan with the court on Monday and is seeking approval of an investment agreement with Republic. Republic had offered the company a $40 million bankruptcy loan in March to help fund its working capital needs.

Under its proposed reorganization plan, Frontier's unsecured creditors would receive $28.75 million in cash, about $40 million would be used to repay its debtor-in-possession loan, and its current common stock would get wiped out.

The case is In re: Frontier Airlines Holdings Inc, U.S. Bankruptcy Court, Southern District of New York, No. 08-11298. (Reporting by Emily Chasan; Editing by Gary Hill)