AirTran, Midwest Merger DEAD!

[PCL_128]

Some have said Skywest would have first right or refusal to purchase Midwest. The rumor that Skywest is purchasing Midwest is heating up. They have to spend their billion in cash on something, maybe this is what they have been saving it for. This (MKE) would be a place where they wouldn't step on the toes of United or Delta either.

Do they spike the kool aid in SGU with crack?

 

[Fly-By-Cable]

I hear that all airline CEOs have flight privileges on other carriers just as a courtesy. Positive space and all that.
When AirTran expanded beond 4 daily flights from MSP to ATL and started running non-stops to FL, NWA pulled JL's free flight benefits, to which he replied with expansion in DTW.
I think it's kind of personal for NWA to cause harm to their Ex-executive who is now one of their competitors. This is just another step in their little private war.

 

[lowecur]

Lowcur,
TPG's stake may be fully or partially financed by a "passive" investor. It doesn't necessarily come out of pocket. Just a thought.

Schwanker

I guess you can set it up that way. Even without the collateral of stock, NWA would benefit in the long run without an AAI/MEH merger.

I just don't see this making it past regulators because of the Antitrust issues. The codeshare was something that was just done a few months ago, no? All put in place to lend credibility to the NWA investment. IMO, regulators will ask NWA to divest itself from any investment.

Wasn't TPG involved in trying to take Qantas private? That deal was nixed because they needed 90% approval from existing shareholders.

imp:​

 

[Propsync]

I don't see them having any problems, Lowecur. The only flights that overlap are MKE-MSP. If every airline was trying to acquire Midwest, would Southwest, United, American, and throw in Continental, be excluded due to existing hub proximity? I guess I don't see how that would stop a deal.

Ultrarunner- Yeah, I get your point. I just feel you guys had a better deal from an employee's eyes with AirTran. I guess from my point of view, Midwest beat it's chest on how great they are, still only to sell. At the end of this, the investors and management will be counting the money, and all of the others employees will lie awake at night hoping they have a job tomorrow. AirTran might not have the dream employer, but they would have kept everyone employed. This deal is worse for the people that do matter, everyone on the front line, and more importantly, those who aren't.

 

[Citrusflyer]

Food for thought

As of now MEH's stock is at $14 and change. If this all cash deal from TPG is the real thing then why wouldn't (at a minimum) the hedge funds be snapping up their stock, it's an easy profit?

I would venture to guess JL called their bluff over a $0.25/share increase in price. And since I'm in conspiracy mode....why would a global investment firm with over $30 Billion in cash need NWA as a passive investor?

TPG is now caught having to show their cards and I'm guessing that they had no intention of wanting to play this particular hand.

But I could be wrong.....

 

[CitationLover]

NOt sure? WHy don't you ask Frank Lorenzo. Standard corporate raider playbook. 1. Break the unions 2. upsteam profits into a holding company. 3. sell off assets. 4. declare bankruptcy and make off with the loot.

this isn't lorenzo. LBO's are an 80's thing. thanks to Lorenzo, there is protection against the lorenzo's now.

 

[lowecur]

I don't see them having any problems, Lowecur. The only flights that overlap are MKE-MSP. If every airline was trying to acquire Midwest, would Southwest, United, American, and throw in Continental, be excluded due to existing hub proximity? I guess I don't see how that would stop a deal.

An MEH spokesperson said the original investment by NWA was 40%, but backed off of that in lieu of we'll have to wait and see what it is when the final numbers are in. In any case, ask yourself why would NWA invest $160M in an airline that has kept them from gaining a significant foothold at MKE for the past umteen years? Do you think the new codeshare from MEH is enough to offset the amortized cost over the next 15 years?

Next question would be, do you think AAI has designs on growing their North Central Midwest network (presently dominated by guess who) by encroaching on many NWA bread and butter routes now that they have a hub and can extend the reach of their 717's. What percentage of NWA routes presently have overlap with LCC's? I'm willing to bet it's quite a bit less than most of the other legacy's.

imp: ​

 

[CitationLover]

What's your definition of a minority shareholder? Don't be surprised if NWA put up the vast majority of the $$ in this deal. The level of NWA's investment has not been disclosed. I think "passive investor" is a better description. How passive is yet to be seen, although I don't think you'll see much in the immediate future.

less than 50%.

again we will see. pilots, myself included, don't know this business as well as we state on this board.

 

[NuGuy]

An MEH spokesperson said the original investment by NWA was 40%, but backed off of that in lieu of we'll have to wait and see what it is when the final numbers are in. In any case, ask yourself why would NWA invest $160M in an airline that has kept them from gaining a significant foothold at MKE for the past umteen years?

Simple...it's called "taking up space with a cripple"

Ask yourself this: Is NWA better off with Spirit in DTW than more SWA?

Is NWA better off with Sun Country in MSP than SWA?

Is NWA better off with Midwest in MKE than AirTran?

I'd say the answer is yes on all counts. Each one of these "low intensity" competitors takes up space and dilutes the market to the point where adding another competitor to the mix loses money for EVERYONE. Far better to have one of these outfits than an truly agressive competitor

I'd say that over the course of 5 years, NWA will make back their investment in spades from protected yields. Not just to/from MKE, but rather all of the connecting traffic that may have used AT to connect through MKE versus NWA in the midwest.

The whole "a midwest company for midwesterners" plays VERY well in that part of the country, too. Gives them political cover and gives JL the big fat finger to boot.

Brilliant move by NWA, IMHO. $140 mil is chump change, and if they get any additional return on their investment, it will be found money.

Well played.

Nu

 

[Propsync]

An MEH spokesperson said the original investment by NWA was 40%, but backed off of that in lieu of we'll have to wait and see what it is when the final numbers are in. In any case, ask yourself why would NWA invest $160M in an airline that has kept them from gaining a significant foothold at MKE for the past umteen years? Do you think the new codeshare from MEH is enough to offset the amortized cost over the next 15 years?

Next question would be, do you think AAI has designs on growing their North Central Midwest network (presently dominated by guess who) by encroaching on many NWA bread and butter routes now that they have a hub and can extend the reach of their 717's. What percentage of NWA routes presently have overlap with LCC's? I'm willing to bet it's quite a bit less than most of the other legacy's.

imp: ​

I guess, to me, 160 is a drop in the bucket compared to having a LCC come in and compete with you. Just as this deal would be the cheap way for AirTran to get an established hub, it's just as cheap for NW to keep the gates occupied without having to compete. Why now, though? I would guess for NW, push has come to shove, and to be honest, I'm suprised they waited so long to drop their name in. I see the game being in the gates, nothing else, just like what SWA did with ATA in MDW.

As far as LCC overlap, I'd agree that NW has the least amount of overlap. Continental would be next. I'd put American there, except for that whole DFW/Love field thing. My question back to you, numbers guy, is how well can NW compete with an LCC, given their recent performance (1-2) years, let's say? Can they handle a major hit to revenue at a hub? Is this minority stake really a much cheaper proposition for NW?