Southwest Airlines 2010 Annual Report Download - page 31

Such process consists first of direct negotiations between the incumbent unions with the assistance of the
companies and second, if integration cannot be achieved through agreement, submitting the seniority integration
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 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 could delay implementation.
Under the RLA, the National Mediation Board (“NMB”) has exclusive authority to resolve representation
disputes arising out of airline mergers. The disputes that the NMB 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, it will be necessary to maintain a “fence” between employee groups, during
which time the Company and AirTran will keep the employee groups separate, each carrier applying the terms of
its own existing collective bargaining agreements, unless other terms have been negotiated. Before full
integration of the employee groups, the Company may also seek to negotiate transition agreements with its
unions that modify existing collective bargaining agreements to address circumstances unique to the transition
process.
Prior to the completion of the merger, there is a risk of litigation or arbitration by unions or individual
employees that could result in monetary damages on the basis that the merger either violates a provision of an
existing collective bargaining agreement or an obligation under the RLA or other applicable law. The unions or
individual employees might also pursue judicial or arbitral claims arising out of changes implemented as a result
of the merger.
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, whether in opposition to the merger or in an attempt to pressure the companies in collective
bargaining negotiations. Although the RLA generally makes such actions unlawful until the parties have been
lawfully released by the NMB 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 will assume AirTran’s indebtedness upon consummation of the merger, which additional
indebtedness may limit the Company’s financial and operating flexibility following the merger.
Upon consummation of the merger, the Company will assume or be indirectly responsible for AirTran’s
outstanding indebtedness and become subject to the operating restrictions under the debt instruments governing
such indebtedness. AirTran has significant indebtedness and other commitments including aircraft purchase
commitments, significant debt and lease obligations related to existing purchased and leased aircraft, and debt
and lease obligations for existing and planned operating facilities. The increased indebtedness of the Company
following the merger may:
• require a substantial portion of cash flows from operations for debt service payments and operating lease
payments, thereby reducing the availability of the Company’s cash flow to fund working capital, capital
expenditures, acquisitions, and other general corporate purposes;
• limit the Company’s ability to obtain additional financing for aircraft purchases, capital expenditures,
working capital or general corporate purposes;
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