Southwest Airlines 2011 Annual Report Download - page 37

The need to integrate AirTran’s workforce presents the potential for delay in achieving expected synergies
and other benefits, or labor disputes that could adversely affect the Company’s operations and costs.
The successful integration of AirTran and achievement of the anticipated benefits of the acquisition depend
significantly on integrating AirTran’s Employees into the Company and on maintaining productive Employee
relations. Failure to do so presents the potential for (i) delays in achieving expected synergies and other benefits
of integration or (ii) labor disputes that could adversely affect the Company’s operations and costs. Southwest
and AirTran are both highly unionized. The process for integrating labor groups in an airline merger is governed
by a combination of the Railway Labor Act, the McCaskill-Bond Act, and where applicable, the existing
provisions of each company’s collective bargaining agreements (“CBAs”) and union policies. Under the
McCaskill-Bond Act, seniority integration must be accomplished in a “fair and equitable” manner consistent with
the process set forth in Sections 3 and 13 of the Allegheny-Mohawk Labor Protective Provisions. This process
consists first of direct negotiations between the incumbent unions with the assistance of the companies. If
integration cannot be achieved through agreement, the seniority integration is submitted to binding arbitration by
a neutral arbitrator. For employee groups having the same representative at both carriers, the McCaskill-Bond
Act provides that seniority integration must be accomplished pursuant to the union’s internal policies if such
policies exist, which may, depending upon the internal policies, require arbitration. Employee dissatisfaction
with the results of the seniority integration may lead to litigation or arbitration, which in some cases can delay
seniority integration.
Under the Railway Labor Act, the National Mediation Board has exclusive authority to resolve
representation disputes arising out of airline mergers. The disputes that the National Mediation Board has
authority to resolve include (i) whether the merger has created a “single transportation system” for representation
purposes; (ii) determination of the appropriate “craft or class” for representational purposes, including a
determination of which positions are to be included within a particular craft or class; and (iii) certification of the
system-wide representative organization, if any, for each craft or class at the Company following the merger.
Pending operational integration of AirTran with the Company, it will be necessary to maintain a “fence”
between Southwest and AirTran Employee groups subject to CBAs, during which time the Company and
AirTran will keep the Employee groups separate, each applying the terms of its own existing CBAs, unless other
terms have been negotiated. In the meantime, the Company has been negotiating transition agreements, which
modify existing CBAs to address circumstances unique to the transition process.
There is also a possibility that employees or unions could engage in job actions such as slow-downs,
work-to-rule campaigns, sick-outs, or other actions designed to disrupt the Company’s or AirTran’s normal
operations in an attempt to pressure the companies in such negotiations. Although the Railway Labor Act
generally makes such actions unlawful until the parties have been lawfully released by the National Mediation
Board to pursue self-help, and the Company and AirTran might be able to seek injunctive relief or other remedies
against premature self-help, such actions could cause significant harm even if the Company or AirTran were
ultimately to be successful.
The Company is expected to continue to incur substantial expenses related to the acquisition and the
integration of AirTran’s business.
The Company is expected to continue to incur substantial integration and transition expenses in connection
with the acquisition of AirTran, including the necessary costs associated with integrating the operations of
Southwest and AirTran. There are a large number of processes, policies, procedures, operations, technologies,
and systems that must be integrated, including reservations, frequent flyer, ticketing/distribution, maintenance,
and flight operations. While the Company has assumed that a certain level of expenses will be incurred, there are
many factors beyond its control that could affect the total amount or the timing of the integration expenses.
Moreover, many of the expenses that will be incurred are, by their nature, difficult to estimate accurately. These
expenses could, particularly in the near term, exceed the financial benefits the Company expects to achieve from
the acquisition, including the elimination of duplicative expenses and the realization of economies of scale and
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