Acquisition of AirTran Holdings completed by Southwest

Southwest Airlines has closed on its purchase of all of the outstanding common stock of AirTran Holdings, Inc, the former parent company of AirTran Airways.

“The successful closing of this transaction is a significant accomplishment and marks a great day in the history of Southwest Airlines,” declared Gary Kelly, CEO, chairman and president of Southwest Airlines. “Our first order of business is to welcome our new friends from AirTran to the family in a truly Southwest Airlines way.

“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 travelling public,” continued Kelly. “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.

“The timing of today’s closing in the current market environment could not be more important,” he added. “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 crewmembers who join the Southwest family. Further, Southwest’s profitability and financial strength, along with the United States’ largest low-fare network, puts AirTran crewmembers in a position to be part of a growing company again, once AirTran is integrated into Southwest.”

Based on the average of Southwest Airlines’ closing prices for the 20 trading days ending three trading days prior to 2 May 2011, of $11.90, the transaction values AirTran common stock at approximately $7.57 per share, or $1.0 billion in the aggregate, excluding shares issuable upon conversion of AirTran’s outstanding convertible notes. Each share of AirTran common stock will be exchanged for $3.75 in cash and 0.321 shares of Southwest Airlines’ common stock. Assuming no conversion of AirTran’s outstanding convertible notes, AirTran stockholders will receive 44 million shares of Southwest Airlines common stock, which will represent 5.6% of the Southwest Airlines common shares outstanding. Additionally, they will receive cash of $518 million. Including the existing AirTran net indebtedness (including outstanding convertible notes) and capitalised aircraft operating leases, the total transaction value is $3.2 billion.

Southwest Airlines is committed to keeping all stakeholders updated on the progress of the integration process and intends to provide an update, in that regard, in conjunction with its second quarter earnings announcement, currently scheduled for 4 August 2011.

On the operational side, Bob Jordan, Southwest’s executive vice-president of strategy and planning, has taken over as president of AirTran. Bob Fornaro, who has served as chairman, president and CEO at AirTran, moves to a new key role as a full-time consultant for the integration of the two airlines, working closely with Kelly and Jordan to ensure a smooth transition. As previously announced, Southwest Airlines’ headquarters will remain in Dallas, with plans for AirTran’s operations and presence in both Orlando and Atlanta still under review.

Jordan will continue to serve on the joint Integration Board consisting of Kelly, Fornaro, Mike Van de Ven (Southwest executive vice-president and chief operating officer), Loral Blinde (AirTran senior vice-president human resources and administration), and Jeff Lamb (Southwest senior vice-president of administration and chief people officer). The Integration Board will continue to provide overall direction of the integration efforts.

Until a Single Operating Certificate (SOC) is secured from the Federal Aviation Administration, 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. Goersch will report directly to Jordan, and will work closely with Van de Ven.

Work begins immediately to integrate AirTran into Southwest Airlines. However, AirTran will continue to operate under the AirTran brand with its same policies, procedures, and product features for a period of time. Southwest plans to integrate AirTran into Southwest Airlines over time by transitioning the AirTran fleet to the 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.

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