A standoff with Frontier Airlines pilots scuttled Southwest Airlines Co.'s attempt to buy the assets of the bankrupt carrier Thursday.

Frontier's pilots refused an offer from the airline for improved wages – but no seniority – and the breakdown of talks sank Southwest's $170 million bid, which was contingent on an agreement with the pilots.

As a result, Republic Airways Holdings Inc. won the bankruptcy court auction for Frontier, buying the Denver-based carrier for almost $108.8 million.

"We said all along that we would only move forward on this deal if it proved to be the right decision for our employees and financially prudent for our company," Gary Kelly, Southwest's chairman and chief executive, said in a prepared statement Thursday evening.

Talks between the Southwest Airlines Pilots Association and the union representing Frontier pilots broke down late Wednesday night, largely over the issue of seniority.

SWAPA's president Carl Kuwitzky said Thursday morning that his union was ready to talk and reach an agreement, but he was somewhat surprised that Frontier's pilots had rejected the airline's offer.

"We thought it was a fair offer," Kuwitzky said.

Frontier pilots, some with 15 years of experience, wanted to maintain their seniority and the right to be captain of a plane. Southwest pilots didn't want their seniority changed and proposed putting Frontier pilots at the bottom of the seniority list.

Meanwhile, talks continue between SWAPA and Southwest over a new contract, and Kuwitzky said he's hopeful a tentative agreement is near after his pilots rejected a deal in June.

SWAPA wanted the deal with Frontier's pilots done before the auction because it feared that potential binding arbitration could have created unfavorable conditions for Southwest pilots.

Southwest's loss was largely unexpected because its bid was larger on its face than Republic's. Also, Southwest's deep pockets seemed to position it to keep outbidding Republic, which is just a fraction of Southwest's size.

Southwest had planned to dump 11 Frontier Airbus planes right off the bat, creating new claims against the bankruptcy from aircraft owners and lessors. Southwest also would have had to pay back loans to Republic and pay a termination fee.

But those costs seemed like small hurdles for Southwest, which was looking to reverse losses in Denver by eliminating Frontier and capturing its share of traffic.

Kuwitzky said the proposal to place Frontier's 650 pilots at the bottom of Southwest's seniority list came with 40 percent pay raises and the chance to fly for the nation's biggest carrier of passengers and its most historically profitable airline.

"Frontier pilots need to look at the facts," said Robert Mann, a union and airline consultant in Port Washington, N.Y.

Republic's acquisition of Midwest Airlines in July resulted in all of Midwest's pilots losing their jobs and being replaced by Republic's regional jet pilots. The same fate could await Frontier pilots down the road, Mann said.

Tough pilot negotiations aren't anything new in the airline industry, but deals between pilot unions do get done quickly in some mergers.

The merger of Northwest Airlines and Delta Air Lines was smoothed by the pilot unions agreeing early to binding arbitration. But pilots of America West and US Airways are still fighting over seniority issues after coming together in 2005, Mann said.

Frontier has been making operational profits while in bankruptcy, and analysts say its planes have been fuller and more profitable than those flown by Southwest on routes where the two carriers compete head to head.

Frontier supporters believe the carrier can effectively compete against both Southwest and incumbent carrier United Airlines out of Denver International Airport, though Mann, for one, isn't so sure.

"Frontier's long-term viability is questionable if Southwest really decides it wants to have Denver," he said.

Frontier said in a prepared statement late Thursday that Republic had improved its bid in several areas to make it the "highest and best" in the auction.

"I look forward to welcoming Frontier to our Republic family," Bryan Bedford, chairman of Republic, said in a joint statement with Frontier.