Midwest 'racing' to avoid bankruptcy filing


Pressure appears to be mounting on Midwest Airlines. The Wall Street Journal says the company "is racing to craft a restructuring plan to avoid a bankruptcy-court filing." Midwest has already said it will ground 12 of its 37 jets, retiring its fuel-guzzling MD-80 aircraft. Midwest CEO Timothy Hoeksema also has warned of layoffs and has called on the many airline's remaining frontline workers to take pay cuts of up to 65%, according to the Milwaukee Journal Sentinel. Hoeksema's call seems to have some urgency, according to the Journal. He calls the airline's situation "critical" and warns the airline's restructuring plan must be put into action within 30 days "to make sure we have the cash level necessary to operate."

The Journal writes "Hoeksema said TPG (Capital) has agreed to provide support in the interim, but won't invest in a restructuring plan unless Midwest's vendors, business partners and employees also agree to sacrifices." TPG became Midwest's majority owner earlier this year (53%) after outbidding AirTran, which was in the midst of a hostile-takeover attempt of Midwest. Northwest signed on as a passive investor (47% stake) as part of that bid. A Northwest spokeswoman would only tell the Journal that "as a passive investor, we are assessing the situation."

Meanwhile, the Journal Sentinel writes some pilots union officials have received reports that Midwest executives may also have "plans to phase out five of its Boeing 717s. Combined with the elimination of the MD-80 jets, those additional aircraft cuts would reduce the airline's fleet by about half." Midwest spokesman Michael Brophy says the company has not made a final decision on how many jets it will cut.

"We have been transparent in communicating to our employees that there are sure to be reductions in work force and benefits through most parts of the organization, but that they will be fair and equitable," Brophy says in a statement quoted by the Journal Sentinel. "Obviously, Chapter 11 is not our most desirable destination. That's why we're working on this restructuring plan, so we can avoid that scenario."

Meanwhile, the airline's unions have so far balked at the proposed pay cuts, which would top out at around 65% for pilots and 56% for flights attendants, according to the WISN TV of Milwaukee. Jay Schnedorf, head of the Midwest pilots union, tells the Journal Sentinel that one wage-cut scenario would drop some pilots' pay from around $120,000 to a figure into the low-$30,000 range. "It's a catastrophic impact on the families," he tells the paper. Dory Klein of Midwest's flight attendants union adds: "We've sacrificed so much. We really don't have much more to give."

The Journal Sentinel goes on to suggest that Midwest's latest flight cuts could give a new opening for AirTran in Milwaukee. Without its MD-80 jets, Midwest will no longer be able to fly to some of its West Coast destinations with its remaining Boeing 717s. At least one industry consultant -- Vaughn Cordle of Airline Forecasts –- says he thinks its possible outcome for Midwest is that its reduced operation could simply be folded into that of passive investor Northwest. "It appears to me that the Midwest fleet is no longer needed," Cordle says to the Journal Sentinel. But officials at Delta, which would take over NWA's 47% share in Midwest if the proposed Delta-NWA merger goes forward, say they intend to keep Midwest flying as a standalone carrier.