MD80s Parked, Further Layoffs

[newsmanhoss]

Here is a memo distributed to YX employees last week that provides an update on the restructuring. Of particular interest is that TPG has apparently already provided interim funding to YX, and an update on the seating choice for the 717s (installation probably underway this week and saver seating sales to begin later this month). Future business bookings are also reported to be strong.

================================

To: All Midwest and Skyway Employees
Date: July 31, 2008
From: T.E. Hoeksema
Subject: Restructuring and General Business Update

I'd like to update you on a number of items regarding our restructuring and general business based on some of the questions I'm hearing.

Restructuring Progress

We have had ongoing talks with ALPA and AFA about concessions. It is our plan to continue to do so in the near future. In keeping with our practice of good faith bargaining, I won't disclose the details of the discussions or characterize the tone of these meetings. Similarly, we are talking with Boeing, SkyWest and other vendors and business partners. We are making progress with some groups; with others, we're not there. We're still working through these negotiations, but at this moment in time, talk about hard and fast deadlines for a Chapter 11 filing is premature.

I will say what we've said before: We are working hard to avoid Chapter 11, but we can't rule it out. We need meaningful concessions from all stakeholders. I know the reductions in pay and benefits for all employees are deep and in some cases very painful in terms of the impact on employees and their families. Similarly for those employees affected by reductions in our workforce and furloughs. But they are necessary for the viability of Midwest Airlines. I'll also reiterate that the pay reductions are fair, equitable and market-based.

TPG remains very supportive, having provided some interim financing in the last several weeks. Nonetheless, we still need to produce a business plan that recognizes the realities of the airline industry today. What we said at the beginning of this restructuring has not changed at all: We need to transform Midwest, fundamentally and structurally, to be able to compete profitably in the future.

Some people have asked about fuel prices and their impact, as we've seen relief in the price of oil. In our estimation, the situation remains volatile. The price may be $127 versus $145 per barrel, but no one knows where prices will go from here. These prices still require us to reshape the airline and take an ultraconservative approach to how we run the business today and into the future. Remember, our initial 2008 plan called for oil at $84 per barrel. That's still significantly less than where prices are today, so any thoughts about restoring employment would be optimistic at this point.

Schedule Changes and Reaccommodation

As expected, the new schedule we announced on July 20 produced a fair amount of publicity and many questions from customers. We recognized the process would be intense and lengthy, but we are making steady progress. The professionalism, patience and effectiveness of the Airport Customer Service, Call Center, Customer Relations and Summit Desk teams are a perfect example of what makes Midwest Airlines "The best care in the air."

We have all taken our share of calls from frustrated customers, friends and neighbors, but nothing like what our customer contact employees have experienced. Due to their excellent work in the face of this adversity, there is a positive and appreciative note from our loyal customers for every frustrated customer comment. The process of communicating with customers and helping them through this new schedule will require additional weeks of tough work, but we should all be proud of these teams and their leadership. Thank you.

Midwest Class Seating Choice

We remain on schedule to reconfigure the Boeing 717 fleet with Midwest Class Signature and Saver seating in the fall. The seats have passed all necessary safety tests and the first set is due to be shipped in the next week for installation. Additional sets will be installed throughout August and September, and we expect to begin sales and promotion in late August.

Advance Bookings

Our 60-day advance bookings are soft, due mostly to the state of the economy and general consumer uncertainty about the future. However, business travel remains solid, as do our close-in bookings. Year over year, our fares are up about 24 percent.

Customer Service

I want to thank all of our Midwest employees who continue to demonstrate the extraordinary service to our customers that has made our airline award-winning and a preferred choice for the traveling public. Over the course of the past weeks, I've heard stories of professionalism and superior service from every part of our operation. This gives me renewed optimism for the future of Midwest as we endure the challenges we face.

[hazelrah]

Originally Posted by newsmanhoss

Here is a memo distributed to YX employees last week that provides an update on the restructuring. Of particular interest is that TPG has apparently already provided interim funding to YX,

Observations:

$150M cash on hand when purchased by TPG/NW. TPG now providing interim financing, the losses must be spectacular.

[BlueHorseShoe2000]

Originally Posted by hazelrah

Observations:

$150M cash on hand when purchased by TPG/NW. TPG now providing interim financing, the losses must be spectacular.

No doubt Midwest is operating at a loss. However, they're not going to blow through all of their available cash before going to TPG for help.

Should Midwest need to seek Chapter 11 protection, they will need to have a good cash cushion if they hope to restructure and emerge from bankruptcy. Back in the summer of 2003 when Midwest nearly filed for Chapter 11, they stated that between $30-$40 million in unrestricted cash would have to be on-hand to whether the process. Given that Midwest is bigger now than five years ago, the amount needed to survive a Chapter 11 filing is likely much higher.

[knope2001]

Operating profit or loss is not directly correlated with cash levels. Sometimes not even close from quarter to quarter or year to year.

There is a stubbornly persistent and quite incorrect notion that “cash” is similar to the cash one has in their pocket. Profit or loss at a corporation is not like a person earning or spending money, building or depleting the cash in their wallet.

Midwest receiving interim financing from TPG tells us nothing much about Midwest's cash level. And further, Midwest's cash level...if we did know it...says nothing about how much money they have lost.

The impairment charges alone from removing the remaining BE1’s, the FRJ’s and the M80’s from their fleet hitting the 2008 books for Midwest are likely quite large…and non-cash. Other costs associated with those moves are cash-affecting. But "cash" is influenced by far more than simple profit or loss.

[BlueHorseShoe2000]

Originally Posted by knope2001

The impairment charges alone from removing the remaining BE1’s, the FRJ’s and the M80’s from their fleet hitting the 2008 books for Midwest are likely quite large…and non-cash.

The impairment charges for the elimination of the Skyway fleet and now the restructuring will be in the tens of millions. For Skyway alone, I believe the charges were estimated to be between $12 and $14 million.

It would be interesting to see what's happening on the actual operations side of the business. The reason I say this is because things are never as the appear from the outside. If you look back at 2006, Midwest returned to profitability after five years in the red. It was surprising to learn that even back then Skyway as a whole was losing money while mainline was profitable. In fact, Skyway was a huge financial drag on the business. The same trends continued into 2007. All of this happened despite having 2x2 seating on all of the 717s and the introduction of the Skywest CRJs. With all of the recent route cuts, I'm beginning to question if routes like MCO, RSW, or FLL ever got beyond marginally profitable, even with Saver Service. I suspect we'll never know.

[RSVP]

Originally Posted by BlueHorseShoe2000

With all of the recent route cuts, I'm beginning to question if routes like MCO, RSW, or FLL ever got beyond marginally profitable, even with Saver Service. I suspect we'll never know.

Florida must have had some profitably.

AirTran saw the books during the takeover attempt and was quick to cover those routes.

[mke9499]

From the AFA-CWA newsletter of 08.14.08

Midwest Airlines

Using the rising cost of fuel and the threat of bankruptcy
Midwest management tried to force the flight attendants to
accept hourly rate cuts between 21 and 34 percent. Management's
proposed pay scale was created by consultants at Seabury OCI and
was calculated using the hourly pay rates for certain airlines
that fly small aircraft and subtracting 12.5 percent from the
median of those rates. Management's proposal would have made the
Midwest flight attendants almost the lowest paid in the
industry.
It became apparent over the last few weeks that the company's
financial position was not as dire as management claimed when
they repeatedly turned down AFA's offer of an Early Out program.
The Early Out, when combined with other monetary changes to the
contract, would have saved the company millions of dollars.
However, management is not interested in those dollars; they
only want the dollars that came from destroying the pay scale.
The Negotiating Committee and MEC notified management there will
be no concessionary deal that includes the permanent destruction
of the pay scale without an Early Out program.