Posted on: 27 September 2010 by Ross McSweeny
Southwest Airlines has entered into a definitive agreement to acquire all of the outstanding common stock of AirTran Holdings, the parent company of AirTran Airways, for a combination of cash and Southwest Airlines’ common stock, making the deal worth $3.4 billion.
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% over the 24 September 2010 closing price of AirTran stock.
Under the agreement, each share of AirTran common stock will be exchanged for $3.75 in cash and 0.321 shares of Southwest Airlines’ common stock, subject to certain adjustments, based on Southwest Airlines’ share price prior to closing which was $12.28. Including the existing AirTran net indebtedness and capitalised aircraft operating leases, the transaction value, as mentioned, is approximately $3.4 billion.
The agreement has been unanimously approved by the boards of directors of each company, and closing is subject to the approval of AirTran stockholders, receipt of certain regulatory clearances, and fulfilment of customary closing conditions.
"Today is an exciting day for our employees, our customers, the communities we serve, and our shareholders," declared Gary Kelly, chairman, president, and CEO of Southwest Airlines. "As we approach our 40th Anniversary of providing exceptional customer service at everyday low fares, the acquisition of AirTran represents a unique opportunity to grow Southwest Airlines’ presence in key markets we don’t yet serve and takes a significant step towards positioning us for future growth.
"This acquisition creates more jobs and career opportunities for our combined employee groups, as a whole. It allows us to better respond to the economic and competitive challenges of our industry, and fits perfectly within our strategy for our fifth decade of service. It offers customers more low-fare destinations as we extend our network and diversify into new markets, including significant opportunities to and from Atlanta, the busiest airport in the US and the largest domestic market we do not serve, as well as Washington, DC via Reagan National Airport. The acquisition also allows us to expand our presence in key markets, like New York LaGuardia, Boston Logan, and Baltimore/Washington. It presents us the opportunity to extend our service to many smaller domestic cities that we don’t serve today, and provides access to key near-international leisure markets in the Caribbean and Mexico. Finally, this accelerates our goal to boost profits and achieve our financial targets."
Based on an economic analysis by Campbell-Hill Aviation Group, Southwest’s more expansive service at Atlanta, alone, has the potential to stimulate more than two million new passengers and over $200 million in consumer savings, annually. These savings would be created from the new low-fare competition that Southwest Airlines would be able to provide as a result of the acquisition.
"Both companies have dedicated people with kindred ‘Warrior Spirits’, who care about each other, and who care about serving customers,” added Kelly. “We will continue to build upon our outstanding customer experiences, strong and unique cultures, and award-winning, safe operations."
Bob Fornaro, AirTran Airways’ chairman, president and CEO remarked, "This agreement is great news for our crewmembers, our shareholders, our customers and the communities we serve. Joining Southwest Airlines will give us opportunities to grow, both professionally as individuals and as a group, in ways that simply would not be possible without this agreement. This agreement with Southwest is a testament to the success and hard work of the more than 8,000 AirTran crewmembers who have built this airline. I am tremendously proud of the things we have accomplished together and look forward to continuing that great work during this next exciting chapter of our history."
AirTran revenues and operating income, excluding special items, for the twelve months ending 30 June 2010 were $2.5 billion and $128 million, respectively. Southwest Airlines revenues and operating income, excluding special items, for the twelve months ending 30 June 2010, were $11.2 billion and $843 million, respectively.
Net annual synergies are expected to exceed $400 million by 2013. One-time costs related to the acquisition and integration of AirTran are expected to be in the range of $300 million to $500 million.
Based on current operations, the combined organisation would have nearly 43,000 employees and serve more than 100 million customers annually from more than 100 different airports in the US and near-international destinations. In addition, the combined carriers’ all-Boeing fleet consisting of 685 active aircraft would include 401 Boeing 737-700s, 173 Boeing 737-300s, 25 Boeing 737-500s, and 86 Boeing 717s, with an average age of approximately 10 years.
Southwest Airlines also announced recently that it is evaluating the opportunity to introduce the Boeing 737-800 into its fleet, providing opportunities for longer-haul flying and service to high-demand, slot-controlled, or gate-restricted markets. This acquisition, says Southwest, supports that evaluation.
Until closing, Southwest Airlines and AirTran will continue to operate as independent companies. After closing, Bob Fornaro will continue to be involved in the integration of the two companies. Southwest plans to integrate AirTran into its brand by transitioning the AirTran fleet to the Southwest Airlines livery, developing a consistent customer experience, and consolidating corporate functions into its Dallas headquarters.
Subject to receipt of necessary approvals, Southwest’s integration plans include transitioning the operations of the two carriers to a single Operating Certificate. Plans for existing AirTran facilities will be developed by integration teams and decisions will be announced at appropriate times. The carriers’ frequent-flyer programmes will be combined over time, as well.