Southwest In, AWA Out Of Midway Bidding

Southwest Airlines this morning said it will submit a bid to the federal bankruptcy court in Indianapolis today for certain assets of bankrupt ATA Airlines. The expected announcement follows yesterday's decision by America West Airlines to refrain from bidding on troubled ATA, which is exiting Chicago Midway Airport. All proposed bids for ATA assets are due today. AirTran Airways this month formalized its $90 million bid for 14 Midway gates and other assets.

Southwest's $100 million proposal covers six Midway gates currently leased to ATA, a codeshare relationship with ATA and "various financing agreements."

Southwest said the addition of six gates to the 19 it already operates at Midway would increase its capacity at the airport by nearly one-third, "supporting further expansion plans." The carrier already announced new waves of Midway flights that by April would grow its operation to 169 daily flights to 32 cities.

The codeshare arrangement, which would be a first for fiercely independent Southwest, would include flights between Midway and nine nonstop destinations currently in the ATA network. Southwest said it would launch next year, contribute as much as $50 million in incremental revenue to each airline and boost its own annual traffic by roughly 1 percent.

"We believe our bid provides a superior reorganization opportunity for ATA and its stakeholders compared to the bid from AirTran Airways," said Southwest CEO Gary Kelly.

Analysts said a successful Southwest bid would further pressure major network carriers in the Chicago market. It also would provide Southwest a strong foothold in the Midwest, enabling it to pursue additional corporate business. "Their future Midway operation would be larger than any current Southwest station in number of flights, presumably offering more frequent flights and therefore a better business schedule," said UBS analyst Robert Ashcroft. "Bad news for Chicago O'Hare denizens United and American."

The bankruptcy court next week will conduct an auction to determine the winning bidder. Additional approvals are required from the city of Chicago and the Air Transportation Stabilization Board, which is backing most of a $168 million loan approved for ATA in late 2002. The court is scheduled to issue a final decision next Thursday.

Helane Becker, analyst with The Benchmark Co., said the $100 million figure in Southwest's proposal is "sure to get the court's attention and the ATSB's attention. Any money resulting from the sale of assets goes first to reduce the government loan."

America West Airlines yesterday removed itself from contention, after exploring a bid that would have seen it assume most of ATA's current operations, assets and employees. "While we believe there is some value in a combined America West/ATA operation, we do not believe the potential value justifies the anticipated cost," said AWA chairman and CEO Doug Parker. "While we have chosen to pass on this particular transaction, we look forward to playing a role in the continued consolidation of the airline industry."