Southwest To Buy AirTran For USD$1.4 Bln

September 27, 2010

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Southwest Airlines said it would acquire AirTran Holdings for about USD$1.4 billion in cash and stock in a move that will merge two of the biggest discount carriers in the US.

Southwest will buy AirTran for USD$7.69 a share, a premium of 69 percent to AirTran's Friday closing price. The deal comprises USD$3.75 a share in cash and 0.321 in Southwest's shares for each AirTran share. Taking in AirTran's existing net indebtedness and capitalised aircraft operating leases, the transaction value is about USD$3.4 billion, Southwest said in a statement.

Gary Kelly, Southwest’s chief executive said: "The acquisition of AirTran represents a unique opportunity to grow Southwest Airline's in key markets we don’t yet serve and takes a step towards positioning us for future growth."

The deal will give Southwest a presence in Atlanta, AirTran’s hub and the busiest airport in the US. It will also extend Dallas-based Southwest’s reach to Washington DC, New York and Boston.

Bob Fornaro, AirTran’s chief executive, said: "This agreement is great news for our crew members, our shareholders and the communities we serve."

Mr Fornaro is to be involved in the integration process, Southwest said.

Southwest said the deal would create "hundreds of additional low-fare itineraries for the travelling public" and would help drive down prices in the industry through tougher competition thanks to its greater scale. The airline pointed to a study by Campbell-Hill Aviation Group that said Southwest’s presence in Atlanta would stimulate more than two million new passengers and more than USD$200 million in consumer savings a year.

The airline industry is seeing a wave of consolidation as it recovers from a surge in oil prices and a drop in air travel caused by the recession.

In May, United parent UAL announced the acquisition of Continental Airlines for USD$3.17 billion in an all-stock deal.

Southwest said excluding the impact of one-time costs, the acquisition is expected to add to its pro-forma earnings per share in the first year after the closing of the deal.

(Reuters)