3-May-2011 10:20 AM

Southwest closes USD1.4bn acquisition of AirTran

Southwest Airlines announced (02-May-2011) it has closed on its purchase of all of the outstanding common stock of AirTran Holdings, the former parent company of AirTran Airways. Each share of AirTran common stock will be exchanged for USD3.75 in cash and 0.321 shares of Southwest Airlines' common stock. AirTran stockholders are expected to receive 44 million shares of Southwest Airlines common stock, which will represent 5.6% of the Southwest Airlines common shares outstanding. AirTran stockholders will also receive USD518 million in cash. Including the existing AirTran net indebtedness (including outstanding convertible notes) and capitalised aircraft operating leases, the total transaction value is USD3.2 billion. AirTran will continue to operate under the AirTran brand with its same policies, procedures, and product features for a unspecified period of time. AirTran will not adopt Southwest's "bags fly free" policy for the time being. Southwest plans to integrate AirTran into Southwest Airlines over time by transitioning the AirTran fleet to Southwest Airlines livery, developing a consistent customer experience, and transitioning the operations of the two carriers onto a Single Operating Certificate. Southwest currently expects it will obtain a SOC in the first quarter of 2012 and estimates it will take several years to fully transition AirTran into Southwest Airlines to become one airline. Bob Jordan, Southwest's Executive Vice President of Strategy and Planning, will serve as President of AirTran. Bob Fornaro, who has served as Chairman, President, and CEO at AirTran, 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. Southwest Airlines' headquarters will remain in Dallas, with plans for AirTran's operations and presence in both Orlando and Atlanta still under review. The new Southwest has a combined market capitalisation of USD9.8 billion. The acquisition is expected to produce annual benefits exceeding USD400 million by 2013, with one-time costs of about USD500 million expected. [more - Southwest Airlines] [more - AirTran SEC filing]

Southwest Airlines: "The successful closing of this transaction is a significant accomplishment and marks a great day in the history of Southwest Airlines. I want to thank the People from both Southwest and AirTran who helped us achieve this important milestone ... 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 DC, via Ronald Reagan National Airport. 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. Today, we also celebrate the promise of expanding our presence at New York LaGuardia, Boston Logan, Milwaukee, and Baltimore/Washington, as well as extending our service to many smaller domestic cities that we don't serve today, with access to key near-international leisure markets in the Caribbean and Mexico." Gary Kelly, CEO, Chairman and President. Source: Southwest Airlines, 02-May-2011.

Southwest Airlines: "The timing of today's closing in the current market environment could not be more important," he continued. "With soaring fuel costs putting many airlines, yet again, in the red, Southwest brings many strengths to bear. Southwest not only brings profitability and financial strength to make this deal feasible, but it also positions the combined companies with an industry-leading investment grade balance sheet to weather the energy-price storm. In addition, it currently positions Southwest to offer improved job security, compensation, and benefits to AirTran Crew Members who join the Southwest family. Further, 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." Gary Kelly, CEO, Chairman and President. Source: Southwest Airlines, 02-May-2011.

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