Airtran-Midwest getting closer to a deal?

[Citrusflyer]

It's no pie in the sky: AirTran-Midwest merger talk looks serious

Goldman Sachs on board as financial adviser

December 28, 2006
BY MARY WISNIEWSKI Business Reporter
Midwest Air Group's hiring of Goldman Sachs as its financial adviser shows that the low-cost Milwaukee airline is seriously considering a $290 million merger proposal from AirTran Holdings, and may try to increase it. "I wouldn't be surprised if they're trying to up the offer," said Marisa Thompson, an AirTran specialist at Morningstar.
She said Midwest will likely use the adviser to get as much value out of the offer as possible without giving away too much proprietary information. "It's going to be a song and dance," said Thompson.
Earlier this month, Midwest refused an $11.25 per share offer from Orlando, Fla.-based AirTran. Midwest's share price has soared since the offer became public Dec. 13, with Midwest closing Wednesday at $11.88.
Midwest, which has increased its marketing in the Chicago area, said the company wants to stay independent.
AirTran made its offer public in the hope of swaying Midwest shareholders. The high-pressure courtship has continued, with AirTran announcing last week that its labor unions support the deal.
"We have said publicly that we would increase the offer if they could demonstrate additional value," said AirTran spokesman Tad Hutcheson. "We want them to say yes. It would make two great airlines even better."
A Midwest spokeswoman said hiring Goldman Sachs gives the airline a "number of options to consider" in its financial strategy and provides counseling on a number of fronts, including the AirTran offer.
"Our current position is that the offer is inadequate," said spokeswoman Carol Skornicka. "We haven't heard anything since then."
"Goldman Sachs will help us with another offer if it should come forward, but so far there hasn't been anything," said Skornicka.

Last week, Midwest said it had reached an agreement with SkyWest Airlines to operate 50-seat regional jet service beginning in April. SkyWest will operate between 15 and 25 planes for Midwest, adding new destinations and increasing frequency of existing routes.
Brian Nelson, who covers Midwest for Morningstar, said Midwest wants to analyze its stand-alone plan as well as its potential for a merger.
"We do think this deal is going to get done," Nelson said. "This is going to be a great deal for Midwest."
The combined companies would be worth $3 billion, and grow to $3.5 billion over the next couple of years, according to AirTran.
Midwest's share value has risen nearly 31 percent since AirTran announced the merger offer and nearly 148 percent in the last year

 

[Ty Webb]

ChuckYogurt/Chuckie/Einstein/Lizard/TexasCrotchrot/Snake seems to have been struck speechless. . . .


.

 

[fam62c]

What are they waiting for?

If AirTran wants this I don't understand why they are waiting to make an offer that has a chance to succeed. They are giving MEH time to put defenses in place and put up roadblocks like the 50-seat subcontract. If they give MEH enough time they might engineer some kind of private buyout or order Airbuses or more MD-80's or something to drive up the stock and minimize MEH's value to AirTran. Also, if MEH has a profitable Q4 and year end profit it will indicate the start of a trend (3 consecutive quarters) and may drive up the stock price and support the MEH argument that they are better off alone. When AirTran went public with the offer and the Head Honchos came to Milwaukeee they had MEH management on the defensive and off balance; they had momentum. They are losing the element of surprise. As any good boxer knows; when you got 'em on the ropes finish 'em off; you may not get another chance. Time to land the knockout punch or leave the ring in defeat.

 

[Citrusflyer]

There is no "element of surprise" in a takeover of a company from the state of Wisconsin....too many regulations preventing that sort of thing are in place there.

Joe and Bob wont pay more for something than what it's worth (i.e. MDW gates) so if Midwest does some irrational things to move the price higher they'll probably bail and wait to see how Midwest pays for the new toys all by themselves (I highly doubt the revenue stream is enough to support new Airbus). Read: Vultures waiting for the cow to die. Plus, their stock is currently at a high because of the profit takers from the merger proposal. If it falls through then the stock will cycle back to it's more realistic value. From where I sit it's a good thing that they haven't made a quick counter proposal. GS will most likely find the best price that both parties are willing to settle for and the deal will be done.

As for Chuck/Einstein.....he's probably huddled wet and naked shivering in the back of his closet.

 

[EX_CV580FR8Dawg]

so what are this weeks winning lotto numbers citrus?

 

[another cfii]

Just a question for the AirTran guys:

1) What is the crew/plane ratio? I'm trying to find out how long upgrade would be if I get on in 07, and this Midex deal is done.

2) With the relatively small size (only 380 or so pilots) in Midex, how bad would that do to the junior or new hire airTran FO that hopes a quick upgrade? (less than 4 years)

Curious mind wants to know...

 

[737 Pylt]

As for Chuck/Einstein.....he's probably huddled wet and naked shivering in the back of his closet.

Maybe you guys can have a welcome "blanket party" for 400ahole/chuck/lawman/einstein/texas crotch rot!
Of course, I wouldn't piss on him if he was on fire!

737

 

[Kenney G]

with only one net gain in aircraft next year if the deal passes, and at least one year to upgrade. thats with a full staple. anything else will delay upgrage even longer

 

[another cfii]

with only one net gain in aircraft next year if the deal passes, and at least one year to upgrade. thats with a full staple. anything else will delay upgrage even longer

I thought airTran is getting like 15 737 in 2008? Is that a firm order or just an option?

Even if a straight staple (highly unlikely), a more systematic integration would put pretty much most (~70%) of Midex's FO above any junior (<2 yr AirTran FO). Would you guys agree with that?

Just trying to gauge the growth at AirTran if this deal goes thru, and seems like it just wait for the "Price is right"..

 

[TV9Driver]

a 2 year fo at AirTran is not junior, he/she is about 6 - 9 months away from upgrade...

 

[RIDETHELIGHTING]

From what Im hearing there will be a 1-4 intergration, and a fence. So as long as there is a fence that will protect the upgrade for the fo`s on property now. No facts, just rumored.

 

[Kenney G]

The plan on the merger presentation from the web show the md80's to be gone by the end of the year. I belive they will take 14 737s and get rid of 13 80's

 

[Lear70]

The plan on the merger presentation from the web show the md80's to be gone by the end of the year. I believe they will take 14 737s and get rid of 13 80's

Bingo.

The management bigwigs want to replace the MD80's ASAP. That would mean almost ZERO upgrades for at least one year (attrition only which is 2-3 a month historically from what I can see).

THEN if you do a 1 for 4 seniority integration (which is a HUGE windfall to the Midwest F/O's), and you put 15 more 737's online in 2008 means about 1/3 of the (now) 2nd year guys get to upgrade with our current delivery schedule the rest would be Midwest F/O's who were anywhere from a few months to a few YEARS away from upgrade.

Then the music stops.

If you have hired on here in the last two years and this deal goes through, you will NOT see Captain for the next 5-7 years unless we buy more planes. Period. Our attrition just isn't that high, especially on the CA side.

If you hire on here in the next 6 months, you will likely be stuck as an F/O for up to a decade and at least 1 year on reserve, possibly longer, again unless we buy more planes.

It's really very simple math - I made a LOT of money base-hopping at my last job by being able to determine seat vacancies based on aircraft deliveries and this one should scare the bejeezus out of any F/O who has less than 2 years on property with AAI.

If the deal goes through and we don't staple, anyone who isn't already a CA or isn't CURRENTLY at AAI within 4-6 months of upgrade won't see the left seat with the current delivery schedule. Everything hinges on whether or not you believe the company will continue to buy new planes after this delivery schedule ends.

The only exception to all of this would be if they create the fences so as to lock the Midwest F/O's out of contention for upgrades (fenced them into their current seat and domicile). If they did this, the AAI F/O's who are currently within 2 years of upgrade would be OK. Otherwise,,,

 

[Ty Webb]

Just a question for the AirTran guys:

1) What is the crew/plane ratio? I'm trying to find out how long upgrade would be if I get on in 07, and this Midex deal is done.

About 12 pilots per plane, if you include mngmnt, mil leave, training, etc.

 

[bendover]

airtran currently has something like 65 firm orders for 737's. even if they get rid of the 11 md80's that midwest has that leaves 54 more to be dilivered over the next 4 yrs. So I don't know where you think that there will be no movements for 5-7 years. .. I agree with a merger it may delay the current fo's upgrade up to another year. but with 65 more aircraft coming it hardly stops. I beleive a ratio and some kind of 2-3 yr.fence would be fair.

 

[TV9Driver]

if there is a fence, yeah it would be fair. But, if there isn't then a percentage of the captain slots that would have gone to Airtran f/os would then be going to Midwest f/os - effectively shutting the door on Airtran f/os that originally would have had those slots. I've been here just under 2 years, so this is of big concern to me. Let me say this though, I'm not a fan of the staple. There needs to be a fair integration (ie we don't take any of their slots and they don't take any of ours). I think a 3 year fence might do that.

Also, lest you think a 1 year delay in upgrade is insignificant, it would mean a difference of about $55-60K in pay. That's basically double f/o's make now.

 

[SkiFishFly]

I've been here a little more than a year and this deal concerns me greatly. I am working on putting my flight time into a legit logbook and considering applying elsewhere. I don't like the uncertainty of what this deal/integration might do to my potential to upgrade with AirTran.
If the FO pay rates were brought up - then it would not be so bad to accept the delay in upgrade.

 

[Lear70]

5-7 years is the number for AirTran pilots currently on the bottom 1/4 of the seniority list to upgrade IF the deal goes through with a 1 for 4 seniority integration with NO fences to protect the F/O's.

63 aircraft still on firm order, but delivery dates have been deferred. ALL 13 aircraft next year to replace the MD80's means no upgrades or movement for one year (or very close to zero, attrition only). That means if you're on reserve, you're gonna be on reserve for another year PLUS however long it takes to move the list (a much bigger list) and hire more people.

That leaves 50 aircraft to be delivered.

I believe the number is 15 deliveries in 2008. Haven't heard a firm 2009 / 2010 delivery schedule yet, so I can only go on what I KNOW for FACT we will be taking delivery of.

We have approximately 1500 pilots on the list at AAI now. Assuming approximately 380 Midwest Pilots makes a combined seniority of about 1,880 people.

Assuming half of their pilots (or close to it) are CA's, half are F/O's, with a 1 for 4 seniority integration their most junior CA would be equivalent to our pilots at around the 760 CURRENT AirTran list range, combined list 950.

With that seniority mix, you'd stick approximately 75-100 F/O's on the list AHEAD of AirTran F/O's who have been here 2 1/2 - 3 years and are about to upgrade.

15 deliveries in 2008 staffing at 6 crews per aircraft = 90 CA slots plus attrition at 2 CA's per month = 114 CA slots for 2008.

IF deliveries continue at the same pace, you get yet another 114 slots for 2009 which just barely takes us through the top 1/4 of the nearly 1,000 F/O's on a combined list at the time of merger.

You'd then put yet another 75-100 Midwest pilots in front of the AirTran pilots hired in the last 2 years. Yet another 2 years of upgrades to get through those guys which is 2009 and 2010.

THEN,,, that's the end of deliveries currently on order. Period. WILL they purchase more? Depends if the company is doing well. If they are, then probably so. If not...

Even if more deliveries come at about the same pace, we have yet another 75-100 Midwest pilots in front of the AirTran pilots hired in the last year (which includes me about to hit my 1st year anniversary). Same aircraft delivery schedule, upgrade some time in 2011 or 2012, about 5 years from now.

If you're a F/O about to hit your 3rd year and upgrade, you can look at another year to year and a half in the right seat at quite possibly the lowest paying major in the country. Midwest guys who weren't expecting to upgrade in the next 1-2 years will be upgrading ahead of you.

If you're an F/O about to hit your 2nd year and were expecting to upgrade in the next 12-18 months, you can count on about 3 years instead. Midwest guys who weren't expecting to upgrade in the next 3-4 years will be upgrading ahead of you.

If you're an F/O just coming up on your 1st year anniversary and were expecting to upgrade in 2 years or so can now count on 5 years instead. Midwest guys who weren't expecting to upgrade in the next 5-6 years will be upgrading ahead of you.

That's a pretty big windfall to a pilot to have his upgrade time cut in half while it's a pretty big slap in the face to tell someone their upgrade time is now doubled.

I understand that aviation is never a certainty, but this isn't a market force or a 9/11 set of events, it's a CREATED set of circumstances that wouldn't occur if the company didn't buy Midwest. The company bears the responsibility to either protect their CURRENT employees or compensate us for the lost upgrade opportunities.

All that is based on having no fences. They put up a 4-5 year fence and protect my upgrade that I signed on to this company for, then I have no beef with it. If they don't, I'm hosed, as are several hundred other junior F/O's, and will continue to drop as many days as they will let me so I can continue to work on my side jobs to earn a REAL income for my family.

 

[Lear70]

Oh, incidentally, for someone like me who is looking at 5 more years on F/O pay instead of upgrading in 2 more years per a projected delivery schedule without a merger, that's a direct cost to my pocketbook of 3 years missed CA's pay, adjusted for today's dollars of approximately $175,000.

Now do you get the picture why I'm so concerned?

There HAVE to be fences to protect our upgrades or there will be a mass exodus by many F/O's who aren't interested in trying to live on the worst pay scale in the majors for more than half a decade (at HOW much cost to the company to train and replace an F/O?)

A lot of us are already putting the apps in elsewhere to hedge our bets.

 

[crashpad]

Yeah, it $ucks. At least if you had some kind of representation, you could put up a brave fight. But you gotta admit there's something to be said for a strong pilot group, and the Midex pilots have worked hard for that. I said before, they will win big time if this meger goes through. They will take and take until they've had their fill...that's a big price to pay, but should be beneficial to all about 10 years down the road. Just bad timing for the Tran pilots with less than five years seniority.

 

[Remington]

I imagine that the age 65rule getting passed would make all this worse?

 

[Lear70]

I imagine that the age 65rule getting passed would make all this worse?

Not by much.

You're talking a difference of probably 10-20 guys a year (combined list) for the next 5 years, 10-15% or about 2-4 months extra to upgrade.

Crashpad, I don't think the Midwest guys will do quite as well as you think. If they had THAT kind of clout they'd get Date Of Hire, but I don't think that's going to happen.

The CA's here have excellent representation. Everything at this airline is about the CA, one of the few holdout airlines with that mentality. Understandably so, even in recent times, when the F/O's have been willing to shut up and hunker down until upgrade since upgrade has been so relatively quick the last 5 years.

How will that change if it suddenly looks like you won't upgrade for an additional 3, 5, or 7 years? Will the F/O's suddenly develop a more serious voice? Only time will tell.

What needs to happen:

At the VERY first indication that the shareholders are going to accept this purchase, EVERY single F/O needs to email / call their representatives AND the senior management here about fences, career expectations, and the cost to the company if suddenly 500-750 F/O's find themselves facing several more years to upgrade and decide to leave (not to mention the next hiring boom already starting amongst other majors with MUCH better long-term F/O pay scales).

The squeaky wheel gets the grease, and will help mitigate whatever damage a well-organized and unified pilot group (Midwest) would accomplish during seniority integration talks / arbitration. Even mitigated however, it still has the potential for serious damage.

A 3-year fence wouldn't do the trick for all the F/O's currently on property, it would need to be upwards of 4-5.

As far as being beneficial for ALL 10 years down the road? Maybe it will START being beneficial by then for the junior guys...

 

[Ty Webb]

Yeah, it $ucks. At least if you had some kind of representation, you could put up a brave fight. .

We do have representation, and a pretty sizable M/A contingency fund. If our goal was to wrest something out of it that was more than we should receive (ie, a staple) we have the horsepower to do it . . . . . but is it the right thing to do?

I don't think so. There is a precedent, from the Valujet/AirTran merger, which followed the Allegheny/Mohawk precedent. It will likely be relative seniority, with fences.

I don't think it will be as doom/gloom as Lear70, but I sure understand his frustration. I think the upgrades will come to much of a halt for a one year period while the MD80 guys get transitioned, but we will probably grow at a rate after that that would be greater then previous, and there will be more airplanes ordered, rest assured.

When I hired on in 2001, I was told to be ready to upgrade in a year. There were upgrades during that time of 11 months, in some cases (on the DC9). Then, they made the decision to do away with the DC9, and the 717 deliveries, instead of being growth, became replacement deliveries. The upgrades pretty much stopped as the transition training went on. Some DC9 Captains didn't have the seniority to hold 717 CA and were downgraded to FO. Everyone else pretty much stayed where they were for about 18 months or so . . It sucked for everyone, except the guys at the top. My one year upgrade became three.

Then, the music started again, and the growth/movement continued. . . . and I imagine this will be pretty much the same- at least in that regard.

 

[Remington]

Or, SWA buys Airtran, keeps the -700s, and sells the 717s to MEH?

 

[400ADude]

Or, SWA buys Airtran, keeps the -700s, and sells the 717s to MEH?

Not unlikely. What is Airtran worth? 500-750 million. At least the Airtran guys would get preferential interviews..............at Midwest!:laugh:

 

[Lear70]

I don't think it will be as doom/gloom as Lear70, but I sure understand his frustration. I think the upgrades will come to much of a halt for a one year period while the MD80 guys get transitioned, but we will probably grow at a rate after that that would be greater then previous, and there will be more airplanes ordered, rest assured.

(HeeHaw music) "DOOOOMMM, DesPAAAAIRRR, and agony on me. DEEP DARK DEPREESSION, excessive misery..." LOL

That's one possibility that could change the balance at least somewhat: an accelerated delivery schedule.

Question is, would the airline try to slow down some and get a handle on things for a year or two following the acquisition and MD80 replacements or just blast ahead and accelerate the deliveries for a Mid-west / West Coast expansion (excuse the pun, unintended).

Again, only time will tell. But would you take that chance? If you were a 1st or 2nd year F/O and got the call from SWA or CAL, would you stay or would you go where you KNOW the F/O pay scale for 5-7 years would beat AirTran by more than $100,000 over that period? That's a lot of money to give up for an uncertain gamble of accelerated growth here.

A lot of guys, including myself, were planning on making AirTran a career, but can we afford not only to never make as much as our peer groups (union DVD presentation) but ALSO getting dinged on F/O pay for 20% of our remaining careers (assuming average age in the mid-30's with 25 years or so left until Age 60)?

Hard questions. You'd be a fool not to ask them. The only choices are to hedge your bets NOW, make sure our voice and concerns are heard by Management and the NPA, then make a decision for ourselves and our family when the outcome is decided.

 

[BR715]

Let's just worry about it after if happens. In my opinion Midwest does not want it so it will not happen. Enjoy your holiday's and try not to worry so much!

 

[Phaedrus]

Lear: I'm by no means advocating you bail on AirTran, but you're concerns were exactly mine when I left there over the summer. Too much instability and too many unknowns for my personal taste. That was before the Midwest announcement. I wish you luck in whatever you decide to do.

 

[jobear]

The way AirTran has been shopping for a new partner does seem to me to be a bit weird. Or is it the grow or die mentaily? Not looking to flame anyone just askin'.

Jobear

 

[Lear70]

Thanks, Phaedrus.

I really, really like it here (pay and the Midwest issues aside). I've flown with only 2 guys I wouldn't care to fly with again out of several dozen, the schedules have been good (even on reserve I drop down to 14-15 days off and credit 80-85 hours), and I like that they mostly leave us alone to come fly our trips and go home. It's such a far cry from what I came from that I have a hard time even contemplating going through the angst of another interview, training cycle, etc, but...

I just can't afford to sit 5-7 years as an F/O. If I'm going to do that, I might as well go to CAL or SWA where the F/O pay is good after 1st year or, God willing, Purple or Brown (not that I want to do 6-8 day stints in foreign countries, but I miss cargo). Not that I have all those options, but I have friends at almost every carrier and would hope that I could get at least an interview at one of them...

For me it HAS to be about the money at this point in my career. I've had my fun flying Lears and such and now that I have a family, I have to make enough money to re-start my retirement savings that's been ransacked now after 9/11 and again after taking a $35,000 pay cut to come here.

I can't do that on $40k, $50k, or even $60k a year with a wife, two kids (possibly soon to be 3 and if that happens, someone's tubes are getting tied), and a mortgage unless we live like paupers and you HAVE to have at least SOME life, who knows if you're going to get hit by a truck at 40...?

Don't want to obsess over it, but like I said, you'd be crazy not to take all of this into account.