Can the NW/TPG deal close in the current environment?
#46
Join Date: Oct 2004
Posts: 2,653
Northwest benefits *most* from a relatively stable MKE, including Midwest as the dominant carrier.
A takeover which takes Midwest out...by AirTran or by Northwest...puts Milwaukee solidly "in play" for increased poaching by low-fare carriers. Northwest has a good deal of strength, revenue, and (most likely) domestic profits coming from Wisconsin. A big increase in service at MKE from AirTran, Southwest, JetBlue or others not only deals NW a big blow in MKE, but their ability to get high fares in Madison, Green Bay, and Appleton is also hurt.
As long as Midwest is intact here, there's a pretty good competitor to keep LCC's in check in Wisconsin. And that benefits Northwest a great deal.
If Northwest's plan was to absorb Midwest all along, they might well have made a counterbid themselves, which they did not.
By no means does this guarantee Northwest will never absorb Midwest. But beyond the obvious block of AirTran, I think their underlying motivation is preservation of the status quo. That's worth a lot more to them than the financial returns they'd have if they bought the other 53% of Midwest, took over the MKE routes, and had to fight back LCC's themselves.
A takeover which takes Midwest out...by AirTran or by Northwest...puts Milwaukee solidly "in play" for increased poaching by low-fare carriers. Northwest has a good deal of strength, revenue, and (most likely) domestic profits coming from Wisconsin. A big increase in service at MKE from AirTran, Southwest, JetBlue or others not only deals NW a big blow in MKE, but their ability to get high fares in Madison, Green Bay, and Appleton is also hurt.
As long as Midwest is intact here, there's a pretty good competitor to keep LCC's in check in Wisconsin. And that benefits Northwest a great deal.
If Northwest's plan was to absorb Midwest all along, they might well have made a counterbid themselves, which they did not.
By no means does this guarantee Northwest will never absorb Midwest. But beyond the obvious block of AirTran, I think their underlying motivation is preservation of the status quo. That's worth a lot more to them than the financial returns they'd have if they bought the other 53% of Midwest, took over the MKE routes, and had to fight back LCC's themselves.
Last edited by knope2001; Jan 8, 2008 at 1:17 pm
#47
Join Date: Dec 2007
Location: Milwaukee
Programs: YX
Posts: 170
Sorenson
Sorensen along with a number of other reporters have a lot of egg on their faces these days and just keep trying to incite fear that this is such a bad deal and will fail. Once the deal closes, he won't have anything to write about.
#48
Join Date: Jan 2007
Location: Bay Area, CA
Programs: United Mileage Plus
Posts: 1,159
Northwest benefits *most* from a relatively stable MKE, including Midwest as the dominant carrier.
A takeover which takes Midwest out...by AirTran or by Northwest...puts Milwaukee solidly "in play" for increased poaching by low-fare carriers. Northwest has a good deal of strength, revenue, and (most likely) domestic profits coming from Wisconsin. A big increase in service at MKE from AirTran, Southwest, JetBlue or others not only deals NW a big blow in MKE, but their ability to get high fares in Madison, Green Bay, and Appleton is also hurt.
As long as Midwest is intact here, there's a pretty good competitor to keep LCC's in check in Wisconsin. And that benefits Northwest a great deal.
If Northwest's plan was to absorb Midwest all along, they might well have made a counterbid themselves, which they did not.
By no means does this guarantee Northwest will never absorb Midwest. But beyond the obvious block of AirTran, I think their underlying motivation is preservation of the status quo. That's worth a lot more to them than the financial returns they'd have if they bought the other 53% of Midwest, took over the MKE routes, and had to fight back LCC's themselves.
A takeover which takes Midwest out...by AirTran or by Northwest...puts Milwaukee solidly "in play" for increased poaching by low-fare carriers. Northwest has a good deal of strength, revenue, and (most likely) domestic profits coming from Wisconsin. A big increase in service at MKE from AirTran, Southwest, JetBlue or others not only deals NW a big blow in MKE, but their ability to get high fares in Madison, Green Bay, and Appleton is also hurt.
As long as Midwest is intact here, there's a pretty good competitor to keep LCC's in check in Wisconsin. And that benefits Northwest a great deal.
If Northwest's plan was to absorb Midwest all along, they might well have made a counterbid themselves, which they did not.
By no means does this guarantee Northwest will never absorb Midwest. But beyond the obvious block of AirTran, I think their underlying motivation is preservation of the status quo. That's worth a lot more to them than the financial returns they'd have if they bought the other 53% of Midwest, took over the MKE routes, and had to fight back LCC's themselves.
#49
Join Date: Nov 2004
Location: Spam-a-lot
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Posts: 523
Northwest benefits *most* from a relatively stable MKE, including Midwest as the dominant carrier.
As long as Midwest is intact here, there's a pretty good competitor to keep LCC's in check in Wisconsin. And that benefits Northwest a great deal.
If Northwest's plan was to absorb Midwest all along, they might well have made a counterbid themselves, which they did not.
As long as Midwest is intact here, there's a pretty good competitor to keep LCC's in check in Wisconsin. And that benefits Northwest a great deal.
If Northwest's plan was to absorb Midwest all along, they might well have made a counterbid themselves, which they did not.
You are correct. NW had to defend MKE, but since they just emerged from BK I don't think they thought the shareholders would go for a merger with a money-pit like YX. So they did the next best thing - bought time by investing. If TPG can turn YX around, NW will have a much easier time convincing their shareholders that this is a good move, and when faced with the prospect of letting YX go free as a stand alone or buying out TPG's stake to me it is a no brainer. What better way to ensure that the status quo remains in place in MKE than making sure of it by buying YX?
#50
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Not necessarily. If they had made a successful counterbid for total acquisition, then the DOJ would have employed a merger antitrust analysis. As it turns out, that's what DOJ decided to do with the TPG/NWA combo deal, but there was reason to believe DOJ might not do that with NWA as a minority shareholder with a purchase option.
#51
Join Date: Dec 2002
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I agree that 47% is way too high for a NW stake. I have no problem with the deal if there is no way NW can buy the airline or influence its operations.
#52
Join Date: May 2001
Location: IAD
Posts: 6,148
If the NW/TPG deal doesn't close, it would not shock me to see a YX/FL merger or if things get really bad to see YX file a pre-packaged bankruptcy later this year with FL purchasing the assets and dumping everything but the 717s.
#53
Join Date: Dec 2007
Location: Milwaukee
Programs: YX
Posts: 170
I disagree, with 100/barrel oil and a slowing economy the LCCs are extremely vulnerable due to their higher exposure to leisure and price sensitive traffic. FL/YX (assuming union harmony) would have allowed the new carrier to park the YX MD80s and shrink total capacity across the whole system to gain a little pricing power.
If the NW/TPG deal doesn't close, it would not shock me to see a YX/FL merger or if things get really bad to see YX file a pre-packaged bankruptcy later this year with FL purchasing the assets and dumping everything but the 717s.
If the NW/TPG deal doesn't close, it would not shock me to see a YX/FL merger or if things get really bad to see YX file a pre-packaged bankruptcy later this year with FL purchasing the assets and dumping everything but the 717s.
Joe Leonard spent much of 2007 in Milwaukee explaining his unsustainable and undervalued plan to acquire Midwest. He promised a deal within 72 hours. 72 hours had come and gone and Joe Leonard was gone too. The three AirTran members elected to the Board couldn't even support his plan. AirTran was unable to offer an explanation as to why their own members couldn't support their own plan. Think it might be called integrity?
#54
Join Date: Feb 2007
Location: MKE
Programs: Midwest Miles, AirTran A+ Rewards
Posts: 1,445
I'm guessing without the TPG/NWA offer on the table right now, that MEH stock would be worth about 4 dollars a share. If the TPG/NWA deal doesn't get approved by the DoJ I could see AirTran salvating at the chance of getting YX at a reduced price. I really think the TPG/NWA deal will get approved but there is that outside chance it will not happen. I also heard today that there is a better than 50% chance Delta and NWA will try to merge. I know, it has been talked about for years, but I think the legacy airlines see a window of opportunity.
#55
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Like you, I think that's an unlikely scenario, but a very plausible one. AirTran might get what it wants at a steep discount from what it would have paid had its bid prevailed.
#56
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#57
Join Date: Jan 2007
Location: Bay Area, CA
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Posts: 1,159
AirTran won't be buying anyone. They like to talk a big game. When it comes time to put up or shut up, they fold their tent and leave.
Joe Leonard spent much of 2007 in Milwaukee explaining his unsustainable and undervalued plan to acquire Midwest. He promised a deal within 72 hours. 72 hours had come and gone and Joe Leonard was gone too. The three AirTran members elected to the Board couldn't even support his plan. AirTran was unable to offer an explanation as to why their own members couldn't support their own plan. Think it might be called integrity?
Joe Leonard spent much of 2007 in Milwaukee explaining his unsustainable and undervalued plan to acquire Midwest. He promised a deal within 72 hours. 72 hours had come and gone and Joe Leonard was gone too. The three AirTran members elected to the Board couldn't even support his plan. AirTran was unable to offer an explanation as to why their own members couldn't support their own plan. Think it might be called integrity?
#58
Join Date: Jul 2005
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On the other hand, they could be a good fit in Compass.
Duluth is actually a textbook case on NW behavior in keeping captive markets captive. By all accounts Duluth had been performing well and those from Duluth loved having a choice. Sure there were some seaonal factors that scheduling could have taken care of. Midwest's decision to leave this market wasn't possibly influenced by it's competitor's decision to cut pricing to the bone, hmmmmmm?
Maybe DOJ will look at this as part of the anti-trust review?
Duluth is actually a textbook case on NW behavior in keeping captive markets captive. By all accounts Duluth had been performing well and those from Duluth loved having a choice. Sure there were some seaonal factors that scheduling could have taken care of. Midwest's decision to leave this market wasn't possibly influenced by it's competitor's decision to cut pricing to the bone, hmmmmmm?
Maybe DOJ will look at this as part of the anti-trust review?
#59
Join Date: Jan 2007
Location: Chicago
Posts: 1,800
By all accounts Duluth had been performing well and those from Duluth loved having a choice. Sure there were some seaonal factors that scheduling could have taken care of. Midwest's decision to leave this market wasn't possibly influenced by it's competitor's decision to cut pricing to the bone, hmmmmmm?
Midwest said that the route got off to a promising start and carried decent loads during the peak summer months (as did nearly every other route). However, loads began to fall off as the end of summer neared. Midwest responded to this by reducinging the flight schedule from 3x daily to 2x daily which was already in the schedules prior to the TPG/NWA deal surfacing). Loads and yields still didn't improve, despite the reduced capacity. Advance bookings were also below projections. The route didn't show much promise and was therefore cut.
As you know, Skyway has been unprofitable during most of, if not all, 2007. If DLH was not cutting it financially it's not too surprising that Midwest pulled the plug on the route.
#60
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Northwest matched the fares Midwest was offering and the passengers stayed with the red tail. The people of DLH loved the lower fares, but didn't feel so inclined to throw their business to Midwest.
As you know, Skyway has been unprofitable during most of, if not all, 2007. If DLH was not cutting it financially it's not too surprising that Midwest pulled the plug on the route.
As you know, Skyway has been unprofitable during most of, if not all, 2007. If DLH was not cutting it financially it's not too surprising that Midwest pulled the plug on the route.