Tags: US | Earns | AirTran

AirTran Airways Will Consider Merger If Approached

Wednesday, 21 Apr 2010 11:18 AM

AirTran Airways' chief said Wednesday that the discount carrier would consider a combination with another carrier or a smaller transaction if approached and if such a deal made sense for the company and shareholders.

CEO Robert Fornaro made the comments during a conference call with investors to discuss the airline's first-quarter financial results.

Higher fuel prices stung AirTran, causing the usually profitable airline to post a $12 million loss for the first three months of the year.

On consolidation, Fornaro said AirTran doesn't plan to initiate a deal with another airline. "Regarding the flip side, our position at AirTran is if someone took a peek at AirTran, we would always do our fiduciary duty to look at it and make sure we're looking out for shareholders," he said.

Fornaro added, "If we can benefit and play a role in a transaction, perhaps as a carve-out, we would certainly take a look at that."

Airline combinations in the U.S. usually have involved one carrier acquiring another. A carve-out might involve selling a portion of an airline's operations to another carrier.

United Airlines has been talking to Continental Airlines and separately to US Airways about a combination. Delta Air Lines bought Northwest Airlines in 2008 to become the world's largest airline.

AirTran made a hostile takeover bid of $78 million for Midwest Airlines in June 2005. AirTran raised its offer several times, topping out with an offer worth an estimated $445 million when it was made in August 2007. Each time, its offer was rejected.

Midwest ultimately agreed to be sold to private equity firm TPG Capital for about $450 million, and AirTran has said repeatedly since then that it was glad it didn't succeed in its bid.

As for its financial results, the loss reported Wednesday by AirTran's parent for the January-March period equaled 9 cents a share. A year earlier, AirTran had a profit of $28.7 million, or 21 cents a share.

Excluding one-time items, the loss was 12 cents a share.

Revenue rose 11.7 percent to $605.1 million from $542 million a year earlier.

But AirTran, based in Orlando, Fla., saw a more than 50 percent rise in first-quarter fuel expenses compared with a year ago. Results were also hurt by the February winter storms.

Analysts surveyed by Thomson Reuters were expecting an adjusted loss of 13 cents a share on revenue of $606.2 million.

Also Wednesday, the parent of American Airlines was scheduled to report first-quarter results. On Tuesday, Delta reported a $256 million loss for the first three months of the year.

Across the industry, fares are higher and demand is up. There's also the possibility of further consolidation, with talks between United and US Airways, and separately between United and Continental.

Now, as the busy summer travel season approaches, many of the larger carriers hope to start turning profits again after posting heavy losses in 2009.

AirTran, thanks to its low non-fuel costs and its largely domestic focus, was profitable in every quarter of 2009 while most of its bigger rivals bled red ink.

But in the first quarter of this year, the impact of the winter snowstorms along the East Coast and the increase it saw in fuel expenses offset record revenue.

AirTran spent $200.2 million on aircraft fuel in the first quarter, compared to $132.9 million a year earlier.

AirTran's unrestricted cash balance at quarter's end was $534 million and its revolving line of credit was undrawn.

AirTran expects second-quarter capacity, as measured by available seat miles, to increase 4 percent.

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