subject: AirTran (NYSE: AAI): Southwest Swallows AirTran [print this page] Southwest Airlines, the nation's largest low-fare carrier, said on Monday that it had agreed to buy its smaller rival AirTran Airways in a transaction valued at $1.4 billion, expanding its foothold in New York and Boston and allowing it to move into Atlanta, the nation's largest airport.
Chris O'Meara/Associated PressSouthwest's offer for AirTran comes as the domestic airline industry is consolidating in a bid to return to profitability.
The deal is valued at $3.4 billion when AirTran's debt and aircraft leases are included.Southwest said the purchase had been approved by the boards of both companies, although it still needs regulatory and shareholder approval.
The move comes as the domestic airline industry is consolidating in a bid to reduce the number of seats offered and return to profitability. United Airlines is taking over Continental Airlines on Oct. 1, after shareholders of both companies recently approved the tie-up and the government gave the green light. Delta Air Lines led the way in 2008 when it acquired Northwest.
The transaction is a sharp departure for Southwest, one of the nation's few consistently profitable airlines. The company's success had been built on a simple business model, operating the same type of Boeing 737 planes at a higher frequency between smaller airports.
But Southwest has been looking for ways to expand as its network grew. For instance, it had sought ways into the nation's larger markets, like New York, Boston and Washington.
So far, Southwest's presence in New York has been very limited. It has a few landing and take-off rights, called slots, at LaGuardia. As part of the United-Continental merger, Southwest had recently obtained some slots at Newark Liberty International Airport, near New York City.
Southwest said the acquisition would increase its presence in New York and open the door to Atlanta, which is the nation's largest airport and the hub of Delta Air Lines.
Analysts at Deutsche Bank expect the deal to gain swift regulatory approval given the speed with which the federal government approved the United-Continental tie-up and the fact that the networks of Southwest and AirTran do not overlap much.
Southwest said the transaction would save $400 million a year by 2013. It said the one-time costs related to integrating AirTran would be between $300 million and $500 million.
The offer represents a premium of 69 percent over AirTran's closing stock price on Friday. Airtran shareholders will receive a combination of Southwest shares and cash. That includes at least $3.75 in cash and 0.321 shares of Southwest common stock for each share of AirTran common stock.
