And we only thought AirTran was out of the competition. (No, actually we didn’t.)

This afternoon AirTran issued a press release in which it announced a new offer for Midwest Air Group.

“AirTran Holdings, Inc.,  the parent of AirTran Airways, today announced that, at the request of Midwest shareholders, AirTran has increased its offer for Midwest Air Group, to $16.25 per share in a negotiated merger transaction.

The offer includes $10.00 per share in cash and 0.6056 of a share of AirTran common stock. Based on the closing price of AAI on August 13, 2007, the total value of AirTran’s increased offer represents approximately $445 million.”

This news comes after the largest Midwest shareholder issued a statement today saying that said it was not convinced a sale to a private equity firm is a better deal than the one offered by AirTran.

Pequot Capital Management apparently told Midwest’s board that it’s not convinced the $16 cash offer per share from TPG Capital is a better deal than AirTran’s when other factors are considered.  AirTran had previously offered $15.75 per share.

The Pequot letter filed with the Securities and Exchange Commission claimed that there are a large number of synergies available in a Midwest–AirTran deal which might not be available with TPG.

Pequot managing director Steve Pigott said in the filing that TPG and Northwest may not be able to match the growth opportunities and job creation promised by AirTran.

Not surprisingly, these were basically the same arguments given by AirTran CEO Joe Leonard in this afternoon’s announcement from AirTran — as to why their offer is a better one for Midwest.

Tickers: (NYSE:AAI); (AMEX:MEH)

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