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AirTran makes offer for Midwest Air Group

AirTran Holdings Inc. said its $290 million offer for rival Midwest Air Group Inc. was rejected but that it would continue trying to acquire the regional carrier.
/ Source: The Associated Press

AirTran Holdings Inc. said its $290 million offer for rival Midwest Air Group Inc. was rejected but that it would continue trying to acquire the regional carrier.

AirTran, based in Orlando, disclosed Wednesday that it had bid $11.25 per share on Oct. 20 for Midwest Air Group, but Milwaukee-based Midwest turned down the offer on Dec. 6.

AirTran Chairman and Chief Executive Joe Leonard said he had sent another letter on Wednesday stating that AirTran would continue to pursue the transaction.

A combined company, Leonard said in an interview, would reach $3.5 billion in revenues and have some 15,000 employees by the end of 2007.

“We can grow it in a way that Midwest in our view can never do,” Leonard said.

He did not say when the company would make another offer but promised they would, adding he felt Midwest’s shareholders would want to see such a deal.

Shares of Midwest Air Group soared $2.02, or 22 percent to close at $11.10 on the American Stock Exchange, while AirTran’s shares rose 50 cents to finish at $12.85 on the New York Stock Exchange.

Midwest Air Group’s board of directors told AirTran it wants to remain independent, continuing its growth throughout the region, according to the company’s letter of rejection to Leonard released Wednesday.

“The board feels that the company’s strategic plan and remaining independent hold the best promise for continued growth and increased shareholder value going forward,” the letter said.

In July, Midwest Air Group said it posted a profit of $8.8 million in the second quarter, ending its string of losses that dated to the third quarter of 2003. The company continued its profits in the most recent quarter, posting a profit of $1.6 million.

Calls to Midwest seeking comment were not immediately returned Wednesday.

AirTran Airways has its hub in Atlanta, which would complement Midwest Airlines’ hub in Milwaukee, Leonard said. The two fleets would also merge well because AirTran is the largest operator of Boeing 717s, while Midwest is the second largest, he said.

AirTran currently operates 700 flights a day to 50 cities and has 8,000 employees, while Midwest has more than 2,000 employees and operates throughout the country, with an additional hub in Kansas City, Mo.

Leonard said the combined company could reach 1,000 departures a day in 74 cities.

Doug Abbey, a partner at the Washington-based aviation consultancy The Velocity Group, said the potential consolidation among mid-sized carriers such as AirTran, Midwest and others that tend to be regionally focused is partly a response to the anticipated combination of larger airlines.

“There’s a perception among airline managers that carriers have to be of a certain mass to compete with global players like American and Delta,” Abbey said.

And that even holds true for still smaller regional carriers, many of which depend in part on service contracts with legacy carriers.

“The regionals are going through a period where they are evaluating the most effective way to grow their businesses,” said Debbie McElroy of the Regional Airline Association.

In August of last year, Utah-based carrier SkyWest Inc. bought Atlantic Southeast Airlines Inc. from Atlanta-based Delta Air Lines Inc. for $425 million as a way to diversify the regions it serves.

But acquisitions focused on geographical expansions aren’t the only way for regional carriers to diversify.

Express Jet Holdings, which flies regional jets under the Continental Express flag, announced in October the creation of a new subsidiary that would focus on the corporate aviation market that serves executives, sports teams and other high-rollers.