Midwest lost record $477M in 2008

GOULET!

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Midwest lost record $477 million in 2008

Chapter 11, sale may be in airline’s future, experts say

By Tom Daykin of the Journal Sentinel
Posted: May. 23, 2009 5:38 p.m.

Weighed down by an accounting adjustment and soaring expenses, financially troubled Midwest Airlines last year recorded the biggest annual loss in the airline's 24-year history.
Oak Creek-based Midwest reported a loss of $477 million in 2008, according to newly released Department of Transportation reports. That's more than three times the company's combined losses from 2001 through 2005.
Midwest's results included a 64% increase in operating expenses, to $1.11 billion, driven by last year's run-up in fuel costs. The airline's operating revenue was $653 million, a 3% decline from the year before.
Most of the company's loss was due to the accounting adjustment, not Midwest's operations, Midwest spokesman Michael Brophy said. He declined to disclose the amount of the loss tied to the accounting adjustment. Midwest took the adjustment because of a write-down in the value of some assets, Brophy said.
"Like all airlines, we're continuing to grapple with the economic weakness that the recession has caused," Brophy said in a statement. "Nonetheless, our bookings and (passenger) loads remain strong and customer preference scores are strong."
Meanwhile, Midwest is close to completing its financial restructuring with many of its creditors, Brophy said.
Midwest became a private company with its January 2008 sale to an investment fund operated by TPG Capital, Midwest's majority owner, and no longer is required to file detailed quarterly financial reports with the Securities and Exchange Commission. But all airlines are required to file basic data with the Transportation Department, which monitors their financial viability.
Airline industry consultants and analysts say Midwest, which last year cut service by 40% - among the deepest cuts by a U.S. airline -is facing huge challenges as demand for air travel drops. Concerns about Midwest's future were heightened by the announcement last week that a new competitor, low-fare carrier Southwest Airlines, will be offering flights from Milwaukee's Mitchell International Airport starting in November.
The day after Southwest announced its plans, however, Midwest said it is expanding its agreement with Republic Airways Holdings Inc., which last fall began providing Midwest Connect flights under contract. Chairman Timothy Hoeksema said the new agreement will give Midwest the potential to resume nonstop flights from Milwaukee to West Coast destinations, while leveraging the cost efficiencies of a large regional airline.
Small airline, big loss

The nation's airlines collectively lost $23.5 billion in 2008, according to the Department of Transportation reports. On an operating basis, those losses totaled much less, at $3.7 billion.
Midwest's loss sticks out because it is large for a relatively small airline, said consultant Vaughn Cordle, who operates Airline Forecasts LLC, in Arlington, Va. Last year's loss of $477 million follows two years of profits - $7.7 million in 2007 and $10.6 million in 2006. But Midwest racked up $145 million in losses from 2001 through 2005.
Including those two profitable years, Midwest has lost about $600 million over the past eight years, Cordle said. Midwest doesn't have the advantages of scale that larger airlines enjoy, he said.
Cordle questioned how long Midwest can continue to compete with low-fare carriers such as Southwest and AirTran Airways, as well as global carriers such as Delta Air Lines, which owns a 47% non-management stake in Midwest.
"You cannot make the case that they're viable," Cordle said.
There's also the question of where Midwest will turn for financing.
Fort Worth-based TPG Capital has written down by about 90% its $239 million investment in Midwest, according to a report this month in the Financial Times. The London newspaper cited a letter TPG sent to investors in the fund that includes the Midwest investment. A TPG spokeswoman declined to comment.
Ties to Republic

Republic lent Midwest $25 million last fall when it hired Republic to operate 12 regional jets. That loan, which Midwest said helped it to avoid bankruptcy, comes due in September. The loan is secured by "substantially all of Midwest's unencumbered assets," according to Republic's annual report.
Republic also disclosed in a recent financial report that Midwest would be late on making $3.3 million in contract payments but expects Midwest to make those payments by the end of May.
Republic's involvement in financing Midwest, and the expanded contract to provide more jets, raises questions among industry observers about whether the Indianapolis-based carrier might eventually buy Midwest.
"If the (Midwest) brand has equity, it makes sense to do that," Cordle said.
There's "absolutely" a chance that Republic Airways might end up owning Midwest, agreed Helane Becker, an industry analyst with New York-based Jesup & Lamont Inc. But it's more likely that Midwest will file for Chapter 11 bankruptcy protection to reorganize its finances, Becker said.
Neither Brophy nor Republic spokesman Carlo Bertolini would comment on speculation about a possible Republic acquisition of Midwest.
"We would like to see Midwest complete its restructuring process, stop retreating from markets and actually begin to rebuild its network," Bertolini said in a statement. "Hopefully, if Midwest begins to strengthen its network it will retain the support and loyalty of its frequent travelers and win even more new loyal customers through its special brand of 'best care in the air.' "
 

Minimaniac

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What is the point of restructuring Midwest if they are soon going to have a total fleet of 0 aircraft? All of their 717's are going away (a deal by Boeing, and having nothing to do with Republic, thank you very much). There are no aircraft on order, and no possible way to finance any planes since Boeing made it's plan known. Midwest will not have the means to run a viable business in the eyes of a bankruptcy judge. Sure, they could sell tickets on outsourced planes and take a piece of the revenue, but most all of that revenue would be tied to fixed fee regionals. Midwest could never raise enough capital to expand, nor fend of a buyout. The only two options on the table for Midwest are to sell the company and make what money they can, or to liquidate and not even see a penny once all the creditors lay claim.
 

Beetle007

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What is the point of restructuring Midwest if they are soon going to have a total fleet of 0 aircraft?
I asked this on another post and I will ask it again. Does the Delta contract allow a Delta codeshare passenger to fly on a Republic 100 seat jet operated via a codeshare with Midwest?

How about other airlines that have a codeshare with Delta, which has a codeshare with Midwest, which has a codeshare with Republic. Could a Continental passenger end up on a Republic 100 seat RJ via the Delta/Continental codeshare?

Unless I am missing something, this issue is huge.
 

BUDDHA145

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I asked this on another post and I will ask it again. Does the Delta contract allow a Delta codeshare passenger to fly on a Republic 100 seat jet operated via a codeshare with Midwest?

How about other airlines that have a codeshare with Delta, which has a codeshare with Midwest, which has a codeshare with Republic. Could a Continental passenger end up on a Republic 100 seat RJ via the Delta/Continental codeshare?

Unless I am missing something, this issue is huge.
I don't know if these awnsers your "Q" but RAH has 3 different sertificates, Delta is on SA and CHQ, Contin...is on CHQ only and Midwest is on RA just like USAirways, also CHQ code shares with USAirways, so if I understant the question right the only problem will be if CHQ or SA will get any 100 seaters.
 

atpcliff

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Hi!

I read on another post that DAL does not codeshare with MWA. Which is ironic, considering that DAL is 100% in control of every decision that is made by MWA.

cliff
NBO
 

deadstick

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Hi!

I read on another post that DAL does not codeshare with MWA. Which is ironic, considering that DAL is 100% in control of every decision that is made by MWA.

cliff
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Actually, it's only 47%, and Dick Schifter at TPG plays with the other 53%.

That's something I wondered about. Since Midwest is, technically, a private company, we don't know the creative accounting that went into this figure. I know it cost them a ton to park the Skyway planes and break the leases, but they didn't make many severance payments. All this was a figure thrown out in a DOT report. The specifics are still a mystery.
 

CitationLover

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Actually, it's only 47%, and Dick Schifter at TPG plays with the other 53%.

That's something I wondered about. Since Midwest is, technically, a private company, we don't know the creative accounting that went into this figure. I know it cost them a ton to park the Skyway planes and break the leases, but they didn't make many severance payments. All this was a figure thrown out in a DOT report. The specifics are still a mystery.
Breake leases? Last I heard they were still paying for the Do-328's. Another great decision.
 

deadstick

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Breake leases? Last I heard they were still paying for the Do-328's. Another great decision.
Well, THAT'S par for the course. Good grief! This was the same team that forgot they had a contract to operate EAS routes. This was early last year, but I seem to remember the DOT fine was $100k per day AND per route (there were 4) until Great Lakes got their ops up and going.

Good ol' 92....


 

fam62c

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For whatever reason, somebody is willing to keep throwing money down a rat hole. There has to be some kind of hanky-panky going on to eventually use 100 seaters on the Midwest certificate to get around somebody's scope clause or something like that. If not, they would have already gotten rid of the Midwest certificate and just subbed out all the flying to cut costs; I mean why assume all the costs to keep an operating certificate active for 9 planes that will going away anyway? There's a reason why they are keeping the certificate running even though it's killing them financially; if they were going to dump it it would have already been dumped. They're pushing the Midwest guys to fly 100 seaters way below JetBlue's rates for a reason that has yet to come to light. I sense evil people attempting to do evil things for evil reasons.........Satan's henchmen are involved in this caper for sure. Frank Lorenzo is probably advising TPG on this one.
 

Beetle007

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There has to be some kind of hanky-panky going on to eventually use 100 seaters on the Midwest certificate to get around somebody's scope clause or something like that.

I wonder if Republic will get the Midwest operating certificate if Midwest defaults on the loan?

Republic made a one year term loan to Midwest in the amount of $15.0
million, with an additional loan commitment of $10.0 million, based on the
achievement of certain milestones.

The loan(s) is collateralized by all of Midwest’s unencumbered assets and
generally be senior to other lender’s security position.

http://www.rjet.com/pdf/Midwest%20airlines%20final.pdf
 

eightdriver

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fam62c is right on the money...something is up for sure. I don't think that anthing good will happen for our pilot group, but there has to be more to the story then what we see. With 300+ of our 400 pilots on the street, i can't imagine us ever recovering to what we were. Sad. Of the few airlines I have flew for, Midwest pilots were the most dedicated group I have ever worked with. As a whole they actually gave a $hit about Midwest and the product that they offered. What a waste of resources...
 

Colonel Savage

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fam62c is right on the money...something is up for sure. I don't think that anthing good will happen for our pilot group, but there has to be more to the story then what we see. With 300+ of our 400 pilots on the street, i can't imagine us ever recovering to what we were. Sad. Of the few airlines I have flew for, Midwest pilots were the most dedicated group I have ever worked with. As a whole they actually gave a $hit about Midwest and the product that they offered. What a waste of resources...
That's what this latest generation of private equity firms like TPG do, they find nice places to work that pay and treat their employees well, sieze contol through a buyout and proceed to destroy the place with their updated "business models". We are becoming a very sick society.
 

Wesb737fo

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That's what this latest generation of private equity firms like TPG do, they find nice places to work that pay and treat their employees well, sieze contol through a buyout and proceed to destroy the place with their updated "business models". We are becoming a very sick society.
got that right.
 

ultrarunner

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For whatever reason, somebody is willing to keep throwing money down a rat hole. There has to be some kind of hanky-panky going on to eventually use 100 seaters on the Midwest certificate to get around somebody's scope clause or something like that.
Well, my take is that MEH is going to default on the loan. And RAH will ultimately own the MEH operating certificate.

At that point, if it were me, I would sell that sucker so fast, it would make Herb Kelleher's pecker fall off.
The only thing of value is essentially the gates and the landing rights. With Southwest, Delta and Airtran moving into the MKE picture, there is money to be made, and NOT by some RAH puke flying around 70 to 100 seats barbie jets. The money to be made is where they can be flown to, and who is willing to pay for it.....

MKE in NO WAY can support SWA, DAL, AAI, and RAH...just not gonna happen. The fat lady has sung, and just had a friggin coronary!

Good luck!

 

deadstick

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Well, my take is that MEH is going to default on the loan. And RAH will ultimately own the MEH operating certificate.

At that point, if it were me, I would sell that sucker so fast, it would make Herb Kelleher's pecker fall off.
The only thing of value is essentially the gates and the landing rights. With Southwest, Delta and Airtran moving into the MKE picture, there is money to be made, and NOT by some RAH puke flying around 70 to 100 seats barbie jets. The money to be made is where they can be flown to, and who is willing to pay for it.....

MKE in NO WAY can support SWA, DAL, AAI, and RAH...just not gonna happen. The fat lady has sung, and just had a friggin coronary!

Good luck!

It's just another certificate. Just because the cert is based there (for now), it doesn't mean the planes can't fly out of MSP, ATL, MEM, etc. Also, it's not just MKE that would be supported, but also the northern Chicago suburbs -- that's big money and ORD is a big pain. Your list should be (in descending order of opertions): DAL/RAH (same colors on the 190s), AAI, SWA.
 

Jetjockey

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Knock, knock................."yes Ms. Fat Lady, you're on in 10 minutes."
 

AvroGuy

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if I understant the question right the only problem will be if CHQ or SA will get any 100 seaters.
CHQ won't get them because they are still flying American Connection. It would be a scope violation if CHQ got anything over 50 seats. Happend when the first Ejet came on property and the APA fined the mess out of them. That is another reason for multiple Certs.
 
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