The Milwaukee Journal-Sentinel (newspaper of my birthplace), has this report on Midwest Airlines being late in paying over $1million in gate fees.  Midwest is on my death watch list and this news doesn’t improve their standing at all.  The story mentions that they are contemplating bankruptcy and I should mention that because of changes in the US bankruptcy law, bankruptcy isn’t an easy choice to make anymore.  Those changes in the law are, in part, what drove both Northwest Airlines and Delta Airlines to file bankruptcy in September 2005 on the same day.

Updates to the bankruptcy code now make it more difficult for an airline to file bankruptcy, continue flying and weather debt and fare wars.   Until October of 2005, most airlines used chapter 11 bankruptcy to essentially buy time when competitive pressures put them at a severe disadvantage.   However, Midwest has likely been weighing the chances of obtaining DIP financing (Debtor in Possession) and given their high labor costs, vastly reduced network and fleet, most would not view this as a healthy choice for investment.  In addition to high labor costs, the airline is headquartered and based in Milwaukee, a city known for strong union influence. 

Northwest’s 47% stake in Midwest also makes the airline an unattractive target for a merger to other airlines.  It is possible that Northwest will be ordered to divest itself of its holdings as a condition of approving its merger with Delta but it is not in their interest to do so one day earlier than mandated.  By holding onto Midwest, they make Milwaukee a kind of “fortress airport” that rebuffs other airlines attempts to enter the market such as Airtran.

If Midwest were to go into bankruptcy, it would be very difficult for them to make a case for proceeding alone.  They would have to look for a buyer and while Airtran could be interested, they have already begun to establish Milwaukee as a focus city and other than some assets (namely the B717 aircraft), I’m not sure what else they have to gain by buying Midwest now. 

 To survive, Midwest Airlines would have to enter into Chapter 11, break its labor agreements and obtain enough financing to purchase new (to them) long range aircraft that would support its original network all the while fighting off Northwest, Airtran and any other airline that smells blood.  That’s a tall order for any management team in this industry.

Filed under: Airline News, Death Watch by ajax