Posted: Tue Jan 16, 2007 8:37 am Post subject: Midwest Airlines Fights Hostile Takeover
Midwest Airlines Fights Hostile Takeover
MILWAUKEE - Known for wide leather seats, freshly baked cookies and attention to detail, regional carrier Midwest Airlines has largely flown under the national radar as it quietly gained a following in its namesake region.
The underdog airline now finds itself under siege -- the target of a hostile takeover that many of its loyal passengers and shareholders fear will end the perks and transform the airline from one that boasts, "The Best Care in the Air," to just another airline.
"On other airlines, most business models are to pack them in," said Art Suarez, a Milwaukee area resident who is leading a grass-roots effort to fend off the merger. "We feel like objects and Midwest makes us feel like people."
Besides earning accolades for its service, especially its two-by-two seating, Midwest has attracted the interest of rival low-cost carrier AirTran Airways.
AirTran Holdings Inc. announced in mid-December that Midwest Air Group, parent company to Midwest, rejected its takeover bid worth about $290 million. Milwaukee-based Midwest rejected the offer in early December without making a peep.
AirTran has continued to make its case by taking out full-page advertisements in Midwest's hometown paper, courting local officials and appealing to passengers and shareholders to urge the board to reconsider. On Thursday, it raised its bid to $345 million in cash and stock. Midwest said its board will evaluate the offer and make a recommendation to shareholders within 10 days.
Extending an olive branch to wary shareholders, AirTran has said it would take a hard look at Midwest and could even learn from it about customer service, said Tad Hutcheson, vice president of marketing for the Orlando-based airline.
For example, should the merger go through, AirTran would bake cookies on all its flights, Hutcheson said.
"That's a distinctive hallmark of Midwest service and we have to keep it," he said.
Consolidations seem to be the way of the airline industry right now. United and Continental are holding preliminary discussions of a merger and US Airways Group Inc. has made a hostile bid for bankrupt rival Delta Air Lines Inc.
AirTran argues that the merger makes sense and pushed its offer in ads in the Milwaukee Journal-Sentinel. AirTran Airways has its hub in Atlanta, which would complement Midwest's hub in Milwaukee, AirTran Holdings Inc. chairman and chief executive Joe Leonard has said. Also, the airlines' respective fleets make heavy use of Boeing 717s, so the merger could be seamless.
Midwest says the attention is flattering, but no thanks. The company also hired Goldman, Sachs & Co. as a financial adviser after the takeover rejection to look at its own business plan and respond to anything that may happen, spokeswoman Carol Skornicka said.
"For our entire history, we've had to overcome the skeptics who said we were too small or our business model couldn't work, and we've always emerged as the exception that succeeded," Midwest CEO Tim Hoeksema wrote in a full-page ad of his own in the paper.
Midwest first started as a service for executives of Kimberly-Clark in 1969 out of Appleton, Wis. Ten years later, Midwest Express was born and the company started serving commercial passengers. A few years later, it moved to Milwaukee, going public in 1995. Today it serves 48 cities, including large ones like Los Angeles and Washington, D.C., and smaller ones like Garden City, Kan., and Flint, Mich.
Midwest developed a following for its service, which most likely resulted from its founding as an executive airline, said Darryl Jenkins, an independent airline consultant in Marshall, Va. People nowadays pay attention when they get perks in the air, since there are so few, he said.
"In the last six years, even the airlines that call themselves full service scaled back to the bones, so any time you have any service at all it stands out for people," Jenkins said.
Skornicka said the company always reminds staffers to be courteous to customers, and that's what passengers voiced concerns about after the takeover bid was announced.
"We tell our flight attendants that their job is to treat their customers as if they were a guest in their own home," Skornicka said.
Times always haven't been easy for Midwest. The airline faced delisting from the New York Stock Exchange in 2005 for several reasons, including dipping shares that valued it at about $50 million, less than the $75 million for 30 days in a row needed to remain on the exchange.
Midwest didn't wait to be delisted and in September 2005 switched to the American Stock Exchange, where shares have traded in the past year from a low of $4 to a close of $13.45 on Friday.
Midwest recently ended a string of quarterly losses dating to the third quarter of 2003, posting profits of $8.8 million in the second quarter of 2006 and most recently, $1.6 million.
AirTran's Leonard has predicted the combined company would reach $3.5 billion in revenues and have 15,000 employees by the end of 2007.
Midwest is about half the size of AirTran, with 3,500 employees, compared to AirTran's 8,000 employees.
AirTran operates 700 flights a day to 50 cities. Leonard envisions the combined company having 1,000 departures a day in 74 cities.
Mergers aside, both airlines are coupling with other carriers to expand their service. AirTran has partnered with Frontier Airlines Holdings Inc. to encourage passengers to connect from one carrier to the other.
Midwest just signed a five-year agreement with SkyWest Airlines to operate between 15 and 25 Canadair Regional Jets for Midwest and add new destinations. The company's growth plan announced recently calls for increasing capacity by 15 percent this year and adding six new destinations.
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