Southwest Airlines today said ATA Airlines selected its bid for certain assets over competing offers. The airlines expect final approval from the court overseeing ATA's bankruptcy restructuring on Dec. 21. The $87 million proposal would see Southwest acquire six Chicago Midway Airport gates and build a codeshare arrangement with ATA initially covering flights between Midway and unspecified ATA destinations. If the City of Chicago also approves, the agreement positions Southwest to compete more aggressively against American and United for a portion of the Chicago business travel market.
As part of the deal, Southwest would provide financing for ATA's emergence from Chapter 11 and then pay an additional $30 million for a 27.5 percent nonvoting stake in the restructured Indianapolis-based carrier. Southwest said it plans "to liquidate that position in an orderly manner over time." ATA currently is the tenth-largest commercial carrier in the United States and largest at Chicago Midway, a position it now will cede to Southwest.
The Southwest-ATA codeshare-the first significant partnership for either carrier-would launch early next year. "We will codeshare on about 15 percent of the combined flying of Southwest and the new ATA," said George Mikelsons, chairman and CEO of ATA Airlines parent ATA Holdings. "Having Southwest as a codeshare partner is an enormous accomplishment for a little airline like ATA."
ATA executives said nine routes from Chicago initially would be included in the codeshare, but no specifics were provided. An ATA statement said codeshare flights would launch from five additional airports during a six-month period following initial Midway cooperation.
Mikelsons called the arrangement a "soft codeshare" for which each carrier would sell seats flown by the other. Because ATA offers a premium class product and Southwest does not, Mikelsons said the codeshare would be confined to coach seating.
By virtue of the codeshare and more attractive financial terms, the Southwest bid was selected over a definitive agreement between ATA and AirTran Airways
(BTN, Nov. 8). "We saw Midway Airport expansion as a good opportunity, but we were not going to overpay for those assets," said AirTran chairman and CEO Joe Leonard. AirTran now is entitled to a break-up fee of roughly $3 million.
AirTran said it would continue previous expansion plans as it takes delivery of 19 new Boeing aircraft in 2005. The carrier is expected to push further into Dallas Fort Worth following Delta Air Lines' January retreat.
Meanwhile, ATA plans to maintain domestic and international operations from eight remaining gates at Midway, though executives conceded that service to certain destinations could be completely eliminated. The carrier's overall fleet is to be reduced roughly 20 percent to 50 mainline jets though chief restructuring officer Gil Viets said, "We intend to go back into fairly robust growth" following the Southwest transaction.
Mikelsons added that ATA intends to bring in a new management team to run the restructured company. "I am personally interested in attracting people from Southwest," he said. "To get some of their bloodline into ATA would be very much in my interest."