Updated from 11:09 a.m. EST

Southwest Airlines

(LUV) - Get Report

won a closely watched auction for

ATA Holdings'

(ATAHQ.PK)

gates at Chicago's Midway airport.

In a news release, Southwest confirmed its bid beat one from low-cost rival

AirTran Holdings

(AAI)

, which had hoped to pay $90 million for ATA's 14 Midway gates, along with hard-to-get flight slots at airports in New York and Washington, D.C.

In late October, ATA filed for Chapter 11 bankruptcy protection and announced a tentative deal with AirTran. By filing for bankruptcy court protection, ATA opened itself up to other bidders. Southwest expects final court approval of the auction next Tuesday.

"We are very excited to be named as the winning bidder. This allows Southwest to grow our Chicago presence, and it will provide ATA and its employees and stakeholders with much needed liquidity," said Southwest Chief Executive Gary Kelly.

Under its approved bid, Southwest said it will pay $80 million in cash to ATA, half of which will purchase ATA's leases on six Midway gates and a hangar. The other $40 million will be debtor-in-position financing to help ATA emerge from bankruptcy. In addition to the cash payment, Southwest will guarantee $7 million in loan payments to the city of Chicago.

If and when ATA emerges from bankruptcy, Southwest would convert the debtor-in-possession financing to a term loan payable over five years. Southwest also would pay $30 million in cash for convertible preferred stock, which would give it a 27.5% stake in the new ATA. The stock would be nonvoting, and Southwest would sell it in an "orderly manner" over time.

Southwest and ATA are working on a code-sharing agreement to exchange passengers, initially at Chicago's Midway airport. Southwest estimates the arrangement could add $25 million to $50 million a year to each airline's annual revenue.

Southwest's bid would leave ATA operating eight gates at Midway. Under AirTran's now-dead offer, ATA would have given up all of its Midway gates and focused its commercial business on its Indianapolis hub, and would have continued to make charter flights.

AirTran said it was disappointed about the outcome but would continue with expansion plans in place before the ATA opportunity arose. AirTran will take delivery of 19 new Boeing jets this year, and spokesman Tad Hutcheson said airline will use those planes to grow its existing operations in cities like Philadelphia, Baltimore and Atlanta.

Southwest shares were down 4 cents, or 0.2%, to $15.78, while ATA shares gained 40 cents, or 29.6%, to $1.75, and AirTran stock was down 10 cents, or 0.9%, to $11.