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Acquiring AirTran Airways would become not only our third acquisition in three decades, but the largest and most important yet.
AirTran Airways AcquisitionF
On Sept. 26, 2010, we entered into a merger agreement to acquire AirTran Holdings, Inc., the parent company of AirTran Airways (AirTran). This would become not only our third acquisition in three decades, but the largest and most important yet. The AirTran acquisition fits our vision for the next decade and beyond. We believe the acquisition of AirTran will add more Customers, more destinations to our route map, more aircraft, and more profits to Southwest Airlines. As such, the combination of the two networks would benefit our Customers, Shareholders, Employees, and communities both airlines currently serve through:
- Expanding our route network: The AirTran acquisition would enable immediate and significant growth, allowing for a larger, low-fare airline with a broader national network and increased market share. With a major presence in Atlanta, the largest U.S. market not currently served by Southwest Airlines, and increased access to slot-controlled airports like LaGuardia and Ronald Reagan Washington National, this acquisition allows us to grow in these and other key domestic markets. The addition of the Boeing 717 provides us the flexibility to serve smaller cities and communities beyond those we currently serve. AirTran would also bring the opportunity to expand Southwest Airlines’ service to international locations in Mexico and the Caribbean.
- Accelerating the ability to achieve our financial goals: The acquisition of AirTran supports our 15 percent pretax investment return requirements, based on fully realized annual net synergies and excluding one-time acquisition and integration costs. Through a broader national network, we expect to generate net synergies in excess of $400 million upon full integration. We’re financially healthy and prepared to embark upon this opportunity. We have a leading brand that provides outstanding Customer Service, a strong Culture, excellent safe operations, a nationwide route network, the strongest Balance Sheet in the domestic airline industry, and cash flow that supports our interest in this transaction. Acquiring AirTran accelerates our timeline to boost profitability and achieve our long-term financial targets, and it enables us to gain access to U.S. markets we do not serve today.
- Invigorating competition: We can continue the “Southwest Effect” of reducing fares and stimulating Passenger traffic, by bringing more competition, more low fares, and more Customers to the market. At Hartsfield-Jackson Atlanta International Airport, the world’s busiest airport, we could grow low-fare service to additional nonstop, direct, or connecting markets beyond those served by AirTran. Based on an economic analysis by Campbell-Hill Aviation Group™, LLP, Southwest Airlines' more expansive low-fare service at Atlanta alone has the potential to stimulate more than two million new Passengers and more than $200 million in consumer savings annually.
We closed on the acquisition of AirTran on May 2, 2011, with a total transaction value of $3.2 billion.2 We plan to integrate AirTran into Southwest Airlines through a phased approach. We anticipate the integration time line will span up to two to three years. We intend to operate under a single operating certificate, once approved by the Federal Aviation Administration. We have an integration team, which provides oversight and direction to integrating every aspect of our respective operations, and we will keep our Employees, Customers, Shareholders, and communities informed along the way. Ultimately, once the integration is complete, the traveling public will only see the Southwest Airlines brand—with our policies, our procedures, and our award-winning Customer Service.
2 Includes the existing AirTran net indebtedness and capitalized aircraft operating leases and excludes the value of shares issuable upon conversion of AirTran's outstanding convertible notes at the time of the close