AirTran, Midwest Merger DEAD!

[Schwanker]

southwest loaned ATA money, which is completely different than here. northwest is a minority stakeholder. i was speaking of when ATA grew in the mid to late 90's.

we shall see...

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.

 

[Schwanker]

I'm a little confused by this whole deal. IF TPG sees enough hidden or future value to get it's 16/share plus a high ROI back from Midwest at some point why would it get NWA involved in this deal? Personally, I don't see how TPG is going to get it's money back but these people are smart so they must have an exit strategy. I can guarantee that a lot of MEH cash will find it's way into the pockets of TPG in the form of "fees." I can also guarantee that MEH will be loaded up with as much debt as it can possibly handle to pay for any growth that will happen to make the company look better for a future sale. TPG buys companies and sells them to the public or another company at a profit......it's just what private equity does. In this case there must be something I'm not seeing because I sure don't see MEH being a good value at 16/share. I also think that the airline industry a risky place for investment because there are so many factors that can't be controlled.

There's a chance that what TGP is really doing here is essentially acting as a broker for a sale of MEH to NWA. TPG takes MEH private to thwart AAI and get the stockholders out of the picture. As time goes by NWA slowly buys out TPG (at a nice profit for TPG) or buys selected MEH MKE assets (thus avoiding a merger) from TGP. TGP would continue to collect cash from MEH while this is happening in the form of management and deal-making fees. TGP could use MEH debt (and proceeds from selling stuff to NWA) to fund expansion of the MCI hub and once NWA has taken what they want from the MKE operation they do an IPO of the MEH certificate and operation as a MCI based carrier. Everybody walks away with what they want: TPG gets it's money back and a nice ROI, NWA gets rid of a competitor once and for all and prevents a MKE LCC hub. I think that if the asset sales are done gradually enough there won't be any antitrust issues. MKE, unfortunately loses out as the hub eventually is cherry-picked of the best routes and slots for NWA mainline and everything else is done on NWA affiliate RJ's. Think STL after AMR bought out TWA.

This is all speculation but I smell a rat in the form of the NWA investment. If this was 100% TPG I would still wonder why they were buying MEH because I don't see the "hidden value" here but there would be a chance that TPG would clean up MEH and use MEH debt to grow the company for another IPO. With NWA buying in I just don't see the incentive to grow MEH in MKE even if NWA has a stake.

I also wonder about the future roles of Skyway and Skywest. TGP will be buying Skyway when they buy MEH and Skyway has a terrible fleet and operation problems that make it a drag on earnings. I don't see Skyway and Skywest both staying around......either Skyway needs a major investment to make it viable or it needs to be killed off with Skywest left to do all the work. On another subject, I'm amazed that the MEH MEC Chairman went public with his comments. If he believes what TGP is telling him he could end up looking like a fool. Once this deal is done and MEH is private there will be huge pressure for MEH to "pay" TPG back. Good luck to the Midwest MEC on their next contract.....they're going to need it.

You're correct. I believe TPG is a broker for NWA. I would venture to guess TPG has less $ into this than NWA.

Have you ever heard of Bonderman?

 

[lowecur]

What's your definition of a minority shareholder? Don't be surprised if NWA put up the vast majority of the $$ in this deal. No, TPG can only get dominant control with at least 51%. There are a few other minority investors other than NWA. The level of NWA's investment has not been disclosed. AAI has spys on the board, and they know what NWA's investment is. 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.

Lot's of scenerios can play off this move.

• TPG can go after AAI down the road when their stock price is lower(that's the synergy for making money). AAI stock price could shrink by 33% in the next 6 months as economy faulters (good time for TPG to make offer).
• TPG has a backdoor agreement with NWA that will benefit TPG at some pt in the future for stonewalling an AAI/MEH deal.
• No way this deal was put together for a SWA/AAI merger. That would hurt TPG/MEH/NWA.

imp:​

 

[Schwanker]

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

 

[Coloaviator]

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.

 

[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?