Airtran 2006 Annual Report Download - page 15

In connection with a potential acquisition of Midwest, the operating and financial restrictions and covenants in AirTran’s proposed credit facility to finance a portion
of the consideration being offered in such transaction (the “Acquisition Credit Facility”) and potential assumed Midwest indebtedness may adversely affect AirTran’s
ability to finance future operations or capital needs or to engage in new business activities. In connection with a potential acquisition of Midwest, the proposed
credit agreement and assumed Midwest indebtedness would limit AirTran’s ability to, among other things:
•declare dividends or redeem or repurchase capital stock;
•prepay, redeem or repurchase other debt;
•incur liens;
•make loans, guarantees, acquisitions and investments;
•incur additional indebtedness;
•engage in sale and leaseback transactions;
•amend or otherwise alter debt and other material agreements; and
•engage in mergers, acquisitions or asset sales.
AirTran’s proposed Acquisition Credit Facility would require AirTran to:
•maintain certain financial ratios; and
•maintain certain minimum cash levels.
Further, unless amended, existing Midwest indebtedness may require AirTran to maintain certain cash levels.
For a description of the terms of the commitments for such proposed Acquisition Credit Facility, see the section captioned
“The Offer—Source and Amount of
Funds—Commitments”
in the prospectus in the registration statement on Form S-4 and all amendments thereto filed with the SEC in connection with AirTran’s
Exchange Offer. The failure of AirTran to comply with the covenants and restrictions contained in its indentures and other financing agreements could lead to a
default under the terms of those agreements. AirTran cannot assure you that its future operating results will be sufficient to ensure compliance by it with any
covenants in its proposed Acquisition Credit Facility or in any assumed Midwest indebtedness or to remedy any such default. In addition, in the event of an
acceleration, AirTran may not have or be able to obtain sufficient funds to make any accelerated payments. If such a default occurs, all amounts borrowed and all
amounts due under other instruments that contain provisions for cross-acceleration or cross-default due and payable could be triggered. If that occurs, AirTran
may not be able to make payments on its debt, meet its working capital and capital expenditure requirements, or be able to find additional alternative financing
on favorable or acceptable terms.
THE LIQUIDITY OF AIRTRAN COULD BE ADVERSELY IMPACTED IN THE EVENT ONE OR MORE OF ITS CREDIT CARD PROCESSORS WERE
TO IMPOSE HOLDBACKS ON PAYMENTS DUE TO THE COMPANY FROM CREDIT CARD TRANSACTIONS.
AirTran currently has agreements with organizations that process credit card transactions arising from purchases of air travel tickets by its customers utilizing
American Express, Discover and MasterCard/VISA. Credit card processors have financial risk associated with tickets purchased for travel because, although the
processor generally forwards the cash related to the purchase to AirTran soon after the purchase is completed, the air travel generally occurs after that time, and
the processor would have liability if AirTran does not ultimately provide the air travel. Each of our agreements with the organizations that process American Express,
Discover, and MasterCard/Visa transactions allows, under specified conditions, the credit card processor to retain cash that such processor otherwise would deliver
to AirTran, i.e., a “holdback.” Generally, in all of AirTran’s agreements, the holdbacks can be imposed at the discretion of the processor upon the occurrence of
specified events, including material adverse changes in its financial condition, or if the processor reasonably believes AirTran will be unable to perform its
obligations. AirTran believes it currently has adequate levels of unrestricted cash and short-term investments that are sufficient to prevent the imposition of
holdbacks under ordinary circumstances. As of December 31, 2006, AirTran was in compliance with its credit card agreements and it had holdbacks with only one
processor, which holdbacks were in amounts that were not material to AirTran’s cash balances.
A majority of AirTran’s revenues relate to credit card transactions processed by the MasterCard/Visa processor. AirTran’s agreement with the MasterCard/Visa credit
card processor contains covenants that permit the processor to holdback cash remittances to AirTran, if AirTran does not maintain aggregate prescribed levels of
unrestricted cash and short-term investments; the processor determines that there has been a material adverse occurrence; or certain other events occur. The
amount which the processor may be entitled to withhold varies over time and is equal to the estimated liability for future air travel purchased with Visa and
MasterCard cards. As of December 31, 2006, AirTran was in compliance with the agreement and no remittances had been withheld. As of December 31, 2006, had
such processor been entitled to withhold future remittances, the amount of such withholding entitlement would have been up to $95 million.
In the event material holdbacks are imposed, the liquidity of AirTran in the form of unrestricted cash and short-term investment assets would be reduced by the
amount of the holdbacks. AirTran believes it has, and will continue to have, alternatives to address any requirement for holdbacks by such processors, including
seeking to obtain letters of credit in lieu of accepting a holdback or providing a cash deposit.
AirTran’s agreement with its MasterCard/Visa processor expires March 31, 2008. AirTran’s other credit card processing agreements generally have no fixed term but
are terminable without cause after 30 days’ notice and immediately upon the occurrence of various specified adverse events. The inability to enter into credit card
processing agreements would have a material adverse effect on the business of AirTran. AirTran believes that it will be able to continue to renew its existing credit
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