Airlines & Private Equity 14 Aug 2007 10:33 am

Midwest Airlines Goes Private

by Sean Hackbarth

Midwest Airlines logo

The private equity boom hit Milwaukee. For fans of an independent Midwest Airlines (MEH) this is a good thing. TPG Capital agreed to pay Midwest shareholders $16/share cash to take the airline private.

An interesting wrinkle is Northwest Airlines, the number two carrier out of Milwaukee’s Mitchell International Airport is putting in some money. Rick Esenberg observes, “AirTran had argued that they would actually increase service to Milwaukee by making it a second hub. Northwest must have believed it.” Or else why did get in the deal? That somewhat disparages the theory going around that Air Tran would reduce service to and from Milwaukee.

TPG/NWA won for a simple reason: they offered something better than Air Tran. The Orlando-based airline offered $15.75/share in a combination of cash and stock. TPG/NWA went with all cash. Cash’s liquidity is less risky than Air Tran’s stock. That’s understandable. The only airline to consistently earn a profit since the airline depression following the Sep. 11 attacks has been Southwest. Few think Air Tran is on par with the king of lost-cost flying.

The question now is what will be Midwest’s path to continued profitability? The Milwaukee Journal Sentinel reports TPG will let Midwest continue with its current plan of moderate growth including adding more seats to its signature two-by-two configuration. How that fits with TPG thinking there’s a market for higher-end travel I don’t know. The industry trend is towards low-cost with added bonuses. JetBlue offers all passengers satellite tv and radio, and Southwest offers its quirky style. We all know about JetBlue’s basic problems of getting people on and off their planes so the market may want an airline with a higher price that better ensures passengers get where they want to go. If so Midwest is in a good position. TPG is banking on it.

“What’s in the Cards?”

2 Responses to “Midwest Airlines Goes Private”

  1. on 14 Aug 2007 at 1:17 pm 1.James McDean said …

    May I add a few things…
    TPG is getting an airline with one of the best names in the industry, no dept, and lots of cash in the bank.
    When they add the 3×2 leather seating in the 717’s by next year, Midwest will be operating with a cost as low as Southwest. They can compete with anybody.
    What a great thing!
    All TPG has to do is grow this little airline (something that current management has failed to do) and they have the potential to make more money than ever before in the airline industry.
    Way to go TPG!

  2. on 14 Aug 2007 at 2:16 pm 2.Sean Hackbarth said …

    James, TPG has made no indication they will change the current management. From all accounts they will allow Midwest to continue on the strategic path it’s on.

    As for the seating the announcement they would install 3X2 should give comfort travelers pause. There’s a reason you only see greater space in first and business class. The economics don’t work out. Already almost 50% of Midwest seating is 3X2. I won’t be surprised if in a few years Midwest is mostly that way with first class seating like other airlines. But at least they’ll still have the cookies.

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