Southwest CEO says ATA bid misunderstood
Reports citing a draft copy say Southwest wants to swallow ATA. Not true, Gary Kelly says.
By Times Wire
Published December 15, 2004
DALLAS - Southwest Airlines Co. would get more than six gates at Chicago's Midway Airport if it's the winning bidder for assets of bankrupt ATA Airlines Inc.
According to excerpts from the original bid documents, Southwest could end up owning 35 percent of ATA's common stock and be a close adviser to the Indianapolis carrier while it restructures.
But Tuesday, Southwest chief executive Gary Kelly reiterated to the Dallas Morning News that his carrier has "absolutely no interest in acquiring or controlling ATA."
The documents from Southwest's $100-million bid show the Dallas discounter would be consulted on a range of issues at ATA, including which executives would manage the carrier and when they would be named.
AirTran Airways Inc. has bid about $89.3-million for 14 ATA gates at Midway and other flying rights. U.S. Bankruptcy Judge Basil Lorch III is scheduled to pick a winning bid Thursday after hearing recommendations from ATA and its creditors.
Published reports Tuesday, based on a draft copy obtained by the Indianapolis Star, said Southwest's bid amounted to a takeover of ATA. Kelly called them "completely inaccurate."
According to the draft copy, Southwest would oust ATA senior executives, inject $47-million in cash, take a 35 percent stake in the carrier and name new senior managers who would quickly work to cut labor costs 15 to 20 percent.
That plan would appear to hand ATA chairman J. George Mikelsons a significant defeat. He not only would lose his position as chairman, he would lose control of the direction of the airline he founded in 1972 and he might lose most of his 69 percent stake.
Mikelsons, 67, wants to scale down his 7,700-employee airline and emerge from bankruptcy protection as a smaller carrier centered on Indianapolis using cash from the AirTran deal.
But Kelly said Southwest would not have the ability to name a new executive team, and said he wants Mikelsons to remain involved.
If ATA survives bankruptcy, Southwest would provide $30-million of financing that it would convert into a preferred stake in the airline, Kelly said.
The stake would not have voting rights, he said. Southwest would not have a seat on ATA's board of directors, and it wouldn't be able to name board members.
Southwest's conditions were "a bit unusual" for a bankruptcy bid for assets, said Toby Gerber, a lawyer with Fulbright & Jaworski in Dallas.
But because the bid is mostly a loan to ATA, Southwest "is vitally interested in how they will operate in the future," Gerber said.
Kelly also said renegotiation of labor contracts are no longer part of Southwest's proposal, though he added that a restructured ATA "needs to make a profit" under Southwest's terms.
Southwest would take a role in ATA, but Kelly said it would be to consult in major affairs, not decide.
"They are a company that is in hock up to their eyeballs - they need cash," he said. "We have an interest in trying to recover our loan, and like any commercial lender, we are going to have covenants and requirements."
One of those requirements won't be to pledge ATA's remaining eight gates as collateral for Southwest's financing, Kelly said.
Under earlier terms of Southwest's bid, those remaining gates could have ended up with Southwest if ATA failed. Southwest has 19 of Midway's 43 gates and wants six more.
In an industry riddled by fare wars and high fuel prices, Southwest ranks among the strongest carriers financially. It is known as a fast, efficient operator.
For that reason, Southwest's offer startled industry analysts because it included a code-share provision - for only the second time in Southwest's history.
This would allow ATA to sell Southwest tickets to travelers who use both airlines on one trip.
Because the ticketing requires a complicated computer connection between the airlines, it works against long-held Southwest principles.
"If you read the gospel according to (Southwest chairman) Herb Kelleher, it has three books: Simplicity, simplicity, simplicity," said David Field, Americas editor for the trade journal Airline Business.
AirTran officials had no comment Tuesday. AirTran has proposed buying all 14 gates at Midway and would funnel passengers from its Atlanta and Baltimore hubs to ATA long-distance flights.
ATA is the largest airline at St. Petersburg-Clearwater International Airport, with three daily departures to Midway Airport and three to Indianapolis.
Airport director Noah Lagos said AirTran officials indicated the airline would move the Midway flights to Tampa International Airport if its deal is approved.
He said ATA said it would keep at least two daily Indianapolis flights at St. Petersburg-Clearwater International under the AirTran agreement. Lagos hadn't heard how the airport would fare if Southwest's bid was successful.
Times staff writer Steve Huettel contributed to this report, which includes information from the Dallas Morning News and the Indianapolis Star.