Southwest Airlines is to buy AirTran Holdings, the parent company of Air Tran Airways, in the biggest take-over yet of a U.S. low-cost airline by another.
Dallas-based Southwest Airlines has entered into a definitive agreement to acquire all of the outstanding common stock of AirTran Holdings, Inc., the parent company of AirTran Airways (AirTran), for a combination of cash and Southwest Airlines’ common stock.
Between them, the two airlines carried a combined 110 million passengers in 2009.
The acquisition represents the fourth purchase of another airline or its assets by Southwest, the carrier previously having purchased the Chicago Midway slot assets of ATA in the first decade of this century, as well as buying Salt Lake City-based Morris Air (David Neeleman’s first airline) in the 1990s and Texas-based MD-80 operator Muse Air in the 1980s.
Completion of the transaction, which will require both regulatory and shareholder approvals, is expected to close by the first half of 2011, according to AirTran. Southwest Airlines says it plans to integrate AirTran into the Southwest Airlines brand by transitioning the AirTran fleet to the Southwest Airlines livery, developing a consistent customer experience, and consolidating corporate functions into its Dallas headquarters.
However, until the closing of the transaction, Southwest Airlines and AirTran will continue to operate as independent companies. Commercial and operating integration of the two airlines is slated to culminate in 2012, with both carriers operating under Southwest Airlines’ Federal Aviation Administration operating certificate in Dallas.
The acquisition would give Southwest a workforce of nearly 43,000 employees and a fleet of 685 aircraft (not including outstanding aircraft orders by both carriers, all for Boeing 737-700s).
Based on the two airlines’ current fleets, the combined fleet would include 401 Boeing 737-700s, 173 737-400s, 86 Boeing 717s and 25 Boeing 737-500s. The enlarged Southwest would serve 106 communities, would operate nearly 1.4 million departures a year and for the first time Southwest would serve destinations outside the United States, as a result of AirTran’s existing network to destinations in Mexico and the Caribbean.
Southwest Airlines also announced, previously, that it is evaluating the opportunity to introduce the Boeing 737-800 into its domestic network to complement its current fleet, providing opportunities for longer-haul flying and service to high-demand, slot-controlled, or gate-restricted markets. Southwest says the acquisition of AirTran supports its evaluation of the Boeing 737-800.
At Southwest Airlines’ closing stock price of $12.28 on September 24, 2010, the transaction values AirTran common stock at $7.69 per share, or approximately $1.4 billion in the aggregate, including AirTran’s outstanding convertible notes. This represents a premium of 69 per cent over the September 24, 2010 closing price of AirTran stock.