Dec. 2 (Bloomberg) -- Southwest Airlines Co., the largest low-fare carrier, won court approval to pay $7.5 million for assets held by bankrupt U.S. carrier ATA Airlines Inc. that include 14 flight slots at New York’s LaGuardia airport.

The approval today by U.S. Bankruptcy Judge Basil Lorch in Indianapolis, where ATA is based, will allow Southwest to start flights at the nation’s most-congested airport, a break with its practice of avoiding crowded facilities.

The purchase, which doesn’t include aircraft or ATA employees, allows Dallas-based Southwest to enter a city where full-fare carriers such as Delta Air Lines Inc. dwarf lower- priced competitors. The sale won’t be executed until a formal Chapter 11 plan for ATA is approved by the court.

“It’s a very important market for customers,” Southwest Chief Executive Officer Gary Kelly said today at a Credit Suisse Group AG airline conference in New York. “It will be very successful from the get-go.”

With the flight slots, Southwest will be able to take the “huge step” of operating seven daily round-trip flights from the biggest U.S. city, Southwest’s vice president of properties, Bob Montgomery, said last month.

ATA doesn’t have any physical facilities at LaGuardia, and Southwest is in talks with the Port Authority of New York and New Jersey to acquire one gate to operate LaGuardia flights, according to Kelly’s speech.

Seven Flights

“We can handle seven dailies with one gate,” Kelly said of daily flights. “They have assured us they can make a gate available. If we decide to grow in the future beyond the 14 slots, I’m reasonably comfortable we can get more facilities.”

ATA, which permanently ceased operations after filing for Chapter 11 bankruptcy on April 2, is selling assets to repay creditors seeking as much as $705 million. ATA characterized the Southwest deal as a sale of the business, including operating certificates and trademarks. Southwest doesn’t have plans to revive the carrier.

“The Southwest bid proposal is the product of substantial negotiations over a two-week period, including face-to-face meetings in Dallas,” ATA’s lawyer, Doug Edwards of the firm Haynes & Boone in Houston, said at the hearing.

New York and Atlanta are the only major U.S. cities where Southwest doesn’t fly under its own brand. While the carrier serves Los Angeles International Airport, it has mostly shunned the busiest airports to meet its goal of keeping jets on the ground for only about 25 minutes between flights.

Broader Networks

Southwest, the fifth-biggest U.S. carrier by traffic, will enter New York with broader route networks than operators such as JetBlue Airways Corp., which promotes service as well as low ticket prices, and discounter AirTran Holdings Inc. They rank No. 7 and No. 9, respectively, in the U.S. Delta, the largest airline, has a hub at New York’s Kennedy Airport.

No aspect of Southwest’s future business in New York will be final until early March, Southwest spokeswoman Beth Harbin said today in an e-mailed statement.

“Today was an important step in the right direction for Southwest being able to offer service to LaGuardia,” Harbin said. “There’s still some work that needs to be done before we could say anything specific about the timing or type of service we could offer.”

ATA sought bankruptcy only 25 months after emerging from a previous reorganization. The company blamed its most recent filing on a lost contract with the U.S. military and rising jet fuel prices. The carrier’s debt includes secured claims of $373 million, according to court papers.

Southwest rose 16 cents, or 2 percent, to $8.09 at 2:03 p.m. in New York Stock Exchange composite trading. On Nov. 19, when the company revealed its intention to buy the slots, its stock declined 12 percent to $8.67 -- the largest drop since Sept. 17, 2001, when shares resumed trading after the terrorist attacks on the U.S. The shares have fallen 34 percent this year.

Fleet Status

Southwest could use the LaGuardia slots to add service to nearby international destinations, such as the Caribbean. The carrier would have to modify its fleet, consisting entirely of Boeing 737s, for over-water flights. It would have to add a second type of aircraft for longer routes.

Based on the ATA slots, Southwest’s LaGuardia operations would be smaller than those at Long Island MacArthur Airport near Islip, New York. Southwest has 27 daily nonstops to eight cities at that airport, which is about 50 miles (81 kilometers) from New York City.

A 2004 code-share agreement with ATA gave Southwest customers access to flights into LaGuardia and Washington’s Reagan National airport until ATA stopped serving those airports in 2007.

Slots Value

ATA valued its LaGuardia slots at $2.5 million in court documents. The airline leased the LaGuardia and Reagan slots to AirTran for terms that expire from October 2009 to December 2010. AirTran dropped an earlier bid to buy the airport slots.

ATA hasn’t disclosed whether there are potential buyers for its two slots in Washington. The carrier last week won court approval to accept bids through Dec. 12 for three of its idled Lockheed L1011 aircraft.

The judge ruled from the bench, saying he will sign an order written by ATA.

The case is In re ATA Airlines Inc., 08-03675, U.S. Bankruptcy Court, Southern District Indiana (Indianapolis).

To contact the reporter on this story: Erik Larson in New York at elarson4@bloomberg.net; Mary Schlangenstein in Dallas at maryc.s@bloomberg.net.

Last Updated: December 2, 2008 14:14 EST