In the days since Midwest Air Group Inc.'s Friday disclosure that it has entered into confidentiality agreements with four potential bidders, rumors have been swirling online and among aviation professionals about what airlines might join hostile suitor AirTran Holdings Inc. in bidding for the Oak Creek, Wis.-based carrier.
AirTran put Midwest in play back in December with a bid now valued at nearly $400 million, and after months of back and forth has finally succeeded in convincing Midwest's board to sit down for talks.
But despite the gossip, few other airlines appear to be good fits for Midwest, though the carrier might yet find a white knight in the form of a private equity bidder. Here is a breakdown of rumored airline bidders for Midwest, and what might stand in the way of a bid. ...
Continue reading below
Northwest Airlines Corp.
An AirTran deal for Midwest would give the growing discounter a strong bulkhead in Northwest's backyard, ample reason for Northwest to consider a defensive-minded counteroffer. Northwest has a large frequent-flier base in the region, and it has experimented in the past with making Milwaukee a focus city. However, the airline in recent years has invested heavily in growing its fortress hubs in Minneapolis and Detroit and seemingly would have little need for Midwest's assets. It is unclear how shareholders in the recently bankrupt company would react should Northwest commit $500 million — about 10% of its current market cap — on a move that is likely to produce limited strategic benefits.
Chance of a bid: 30%
Frontier Airlines Holdings Inc.
Frontier, like AirTran, is a discounter desperate to break away from its reliance on a single primary hub. Frontier in Denver is under attack not only from a slimmed-down United Airlines Inc. but from newcomer Southwest as well. However, the company's fleet does not match up with Midwest as well as AirTran's does, potentially making it difficult for Frontier to match AirTran's price. And Frontier might not want to distract attention from the success it has found flying to Mexican tourism destinations from a growing number of U.S. cities. With Frontier currently in search of a new CEO, its board is just as likely to decide to look elsewhere for growth.
Chance of a bid: 20%
Southwest Airlines Co.
The discount king is certainly on the defensive as legacy airlines have brought down costs and low-cost upstarts like AirTran and JetBlue Airways Corp. offer competitive fares with luxuries like assigned seats and in-flight entertainment that Southwest for now can not match. Milwaukee is one of the largest U.S. cities that Southwest does not serve, and a deal for Midwest would overnight give Southwest a large share of that market. The company also has a history of blocking AirTran expansion, in 2004 stepping in to break up a deal AirTran had with ATA Airlines Inc. that would have given it a sizable presence in Southwest stronghold Chicago-Midway. But Midwest's core customer — the business traveler, attracted to the airline by its frills including roomy seats and in-flight food — is no lock to remain with Southwest after a deal. And Southwest, bolstered by its strong brand name, would probably be better served saving its money and simply entering Milwaukee as a startup should it desire to serve the city.
Chance of a bid: 15%
SkyWest Inc.
Regional jet operator SkyWest signed on to provide service to Midwest shortly after AirTran's bid was announced, and it could see that business lost in an AirTran takeover. SkyWest is well-regarded and has already participated in industry consolidation, buying Atlantic Southeast Airlines Inc. from Delta Air Lines Inc. in 2005. However a deal for Midwest would add significant risk and potential union headaches to SkyWest, which currently makes its money flying for other carriers. It is unclear SkyWest management would risk breaking from its business plan and potentially alienating Delta and other partners by buying a competitor.
Chances of a bid: 10%
Delta Air Lines Inc.
Delta since emerging from Chapter 11 earlier this year has been the subject to multiple deal rumors, with Northwest and JetBlue previous targets of mostly unfounded speculation. A deal for Midwest would do little for Delta other than stymie Atlanta archrival AirTran's expansion hopes. But one could argue that Delta would prefer AirTran, which has a strong customer base in Atlanta, to grow elsewhere. There is little reason to believe a company that has shrunk its domestic capacity and bet its future on international expansion would want to buy Midwest.
Chance of a bid: 1%
American Airlines Inc.
Rumors of American's interest stem largely from its purported need for small jets and Midwest's fleet of Boeing 717 aircraft, a type that American abandoned when it bought TWA Airlines Inc. in 2001. Otherwise American has little to gain from a deal for Midwest, and the company is likely gun-shy to do deals after difficulty integrating TWA, Reno Air and AirCal in the last decade.
Chance of a bid: never say never, but less than 1%
—Lou Whiteman
See Midwest's Aug. 3 news release
See TheDeal.com story on AirTran's original bid
See TheDeal.com story on Midwest opening its books to suitors
See TheDeal.com story on Southwest trumping AirTran for Midway Airport gates
See TheDeal.com story on SkyWest buying Atlantic Southeast
See Dealscape post on Delta being linked with JetBlue
See TheDeal.com story on American Airlines' deal troubles
Tags: Midwest Air, AirTran, airlines, travel, air travel, deals, m&a, mergers
Comments
One thing about midwest: they are an all first class carrier and have good food (at least good cookies). They are the opposite of Southwest.
Airtran and Midwest the only carriers in the US that use 717's? Their fleet doesn't match anyones other than Airtran, so what about expressjet, or even Continental. For Continental, Midwest might be too small to be worth the effort of a merger. Could Southwest do another deal like ATA where they buy some gates and set up a code share?