AirTran executives could make millions on Southwest acquisition

AirTran Airways executives would take home millions if Southwest Airlines completes its plan…

Georgia (Oct 4, 2010) — AirTran Airways executives would take home millions if Southwest Airlines completes its plan announced earlier this week to buy the discount carrier.


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Some AirTran executives could get a bonus of half their annual pay through retention agreements disclosed Thursday. Some also could see roughly a doubling of the value of their AirTran stock and option holdings as a result of Monday’s announced deal. And under their employment contracts, some AirTran executives could get golden parachutes worth double their current salaries and bonuses.
AirTran CEO Bob Fornaro could reap some of the biggest rewards from the deal.
The value of his holdings jumped nearly $2.7 million, or roughly 90 percent, according to an estimate by The Atlanta Journal-Constitution.
Likewise, Fornaro and other AirTran executives could reap more millions in cash payouts under their employment contracts as well as the retention bonuses disclosed this week.
That could equal as much as $2.6 million for Fornaro if it were based on 2009 compensation.
Under a retention bonus plan AirTran’s board of directors approved Sunday, Fornaro would get 50 percent of his salary in a lump sum once the deal closes and his monthly salary for an additional two years under a consulting contract after he leaves his CEO job.
Other AirTran insiders would see big gains as well.
The value of AirTran executives’ and directors’ holdings jumped about $7.8 million on Monday after Southwest announced its $1.4 billion deal, which offered AirTran shareholders a combination of cash and Southwest stock that was worth $7.69 per AirTran share at the end of the day. AirTran’s shares were worth $4.55 the Friday before the deal was announced.
Shareholders of Orlando-based AirTran, which has its largest hub in Atlanta, would get roughly a 70 percent gain under Southwest’s offer, based on the value of Monday’s stock-and-cash offer.
Payouts for Fornaro and other executives from the close of the deal could change based on a number of factors, including changes in compensation levels, stock prices and other factors.
Also, Fornaro has a three-year employment agreement that took effect Nov. 1, 2007, and is subject to automatic renewal for additional one-year terms unless the company or Fornaro terminates it. Some other executives have agreements with similar renewal terms. The AirTran-Southwest merger is expected to close in the first half of next year.
According to an AirTran proxy filing to the Securities and Exchange Commission earlier this year, executives including Fornaro, chief financial officer Arne Haak, executive vice president Stephen Kolski, general counsel Richard Magurno, executive vice president Steven Rossum and senior vice president Alfred Smith would get twice their previous salary and bonus, immediate vesting of stock options and grants, continued health and insurance benefits, travel benefits, and retirement benefits if the company terminates them without cause or if they decide to leave the company under certain circumstances.
Southwest "might keep some [executives], but most of them are going to end up leaving the company," said Paul Lapides, director of the Corporate Governance Center at Kennesaw State University. He added that nothing appeared out of the ordinary in the agreements, and "it looks like the transaction was well thought out and fair."
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