Monday, May 2, 2011

Southwest Airlines and AirTran Airways close purchase deal

Southwest Airlines 737-7H4 (32463/1484) N465WN smokes the mains on Rwy 19R as it arrives at John Wayne Orange County Airport (SNA/KSNA) on May 2, 2011 from Sacramento Metropolitan Airport (SMF/KSMF) as "SWA562." 
(Photo by Michael Carter)

Southwest Airlines on Monday completed its acquisition of AirTran Airways, a move that combines the world's largest LCC with the third largest LCC in North America and further accelerates the US industry's consolidation. The deal gained US Dept. of Justice approval last week.

"The acquisition of AirTran represents a unique opportunity to extend our network into key markets we don't yet serve, such as Atlanta and [Washington National]," SWA Chairman, CEO and President Gary Kelly said in a statement. "It gives us the opportunity to serve more than 100 million customers annually from more than 100 different airports in the US and near-international destinations, providing customers more low-fare destinations as we diversify and expand the well-known 'Southwest Effect' to hundreds of additional low-fare itineraries for the traveling public."

SWA valued the deal at around $1 billion in aggregate (below the $1.4 billion originally estimated), or approximately $7.57 per share of AirTran common stock. Each AirTran shareholder will receive $3.75 in cash, with SWA's cash outlay totaling $518 million, and 0.321 shares of SWA common stock, or 44 million shares in total. Including SWA's assumption of AirTran's debt, the transaction is valued at $3.2 billion. The Dallas-based LCC estimates net annual synergies from the acquisition of Orlando-based AirTran will exceed $400 million by 2013. One-time costs associated with the acquisition and integration are pegged at $500 million by SWA.

The two carriers generated $14.7 billion in combined revenue in 2010. As of March 31, SWA/AirTran's combined unrestricted cash and short-term investments stood at approximately $5 billion. SWA said its funding for the transaction came from cash on hand. "In addition, Southwest Airlines has a fully available, unsecured revolving credit facility of $800 million," it noted.

Kelly said, "Southwest's profitability and financial strength, along with the United States' largest low fare network, puts AirTran crew members in a position to be part of a growing company again, once AirTran is integrated into Southwest."

SWA Executive VP-Strategy and Planning Bob Jordan was named AirTran president, effective immediately. AirTran Chairman, President and CEO Bob Fornaro "will move to a new key role today as a full-time consultant for the integration of the two airlines, working closely with Kelly and Jordan to ensure a smooth transition," SWA said in a statement. It noted that SWA's headquarters will remain in Dallas, "with plans for AirTran's operations and presence in both Orlando and Atlanta still under review."

AirTran Airways MD-95-30 (717-2BD) (55004/5005) N940AT taxies at Fort Lauderdale -Hollywood International Airport (FLL/KFLL) on January 13, 2011.
(Photo by Michael Carter)

A joint "Integration Board" that will oversee the carriers' combination is comprised of Jordan, Kelly, SWA Executive VP and COO Mike Van de Ven, AirTran Senior VP-Human Resources and Administration Loral Blinde and SWA Senior VP-Administration and Chief People Officer Jeff Lamb. "Until a single operating certificate is secured … AirTran operational departments will continue operating under the AirTran operating certificate with the full authority of its operating teams led by Klaus Goersch, AirTran's executive vice president-operations and customer service," SWA stated. "Goersch will report directly to Jordan, and will work closely with Mike Van de Ven … The remainder of the leadership structure will be communicated at a future date."

SWA aims to receive a single operating certificate from FAA by the 2012 first quarter. It said it "estimates it will take several years to fully transition AirTran into Southwest Airlines to become one airline."

 (Aaron Karp - ATWOnline News)

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