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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.' "
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.' "
