To protect its hubs in Minneapolis and Detroit, Northwest Airlines joined forces with an equity group to pay about $440 million for Milwaukee-based Midwest Air Group.
The move keeps discounter AirTran Airways from establishing a foothold in Northwest's domain in the upper Midwest and expanding the airline as a low-cost carrier.
Northwest did not disclose the size of its investment with Texas-based TPG Capital LP, but said it had no intention of being more than a passive investor with no management control in the airline.
"This will allow us to continue our code share with Midwest and allow us to work on buying fuel together, which could result in savings," said Dean Breest, Northwest spokesman.
TPG offered $16 per share in cash Sunday, less than an hour after AirTran abandoned its long-term quest to own the airline, with a final bid of $15.75 a share.
"It's good business for Northwest to do the deal," said Michael Boyd, aviation consultant outside Denver. "It's not what Northwest gets that's important. What is important is what it doesn't get."
The TPG bid was approved Sunday by the Midwest Air Group board of directors. The sides hope to have a final deal by Wednesday.
"Midwest had no intention of expanding on its own in Milwaukee," Boyd said. "But with TPG owning the airline and taking it private, people in Milwaukee may not have a hometown airline in a few years."
Midwest controls about 50 percent of the market at Milwaukee's Mitchell International Airport; Northwest has about 19 percent.
Midwest, which serves most U.S. cities with mainline jets and regional service through Midwest Connect, started as in 1948 as an airline Kimberly-Clark ran to shuttle executives between the home office in Wisconsin and its mill cities.
But it made its name in the industry as the airline that offered cabin-wide first-class service, including wider-than-usual leather seats and cookies baked on board.
But in the wake of Sept. 11, Midwest has been forced to cut back on amenities as other carriers have had to do , leaving it with a confusing product, Boyd said.
"Sure, you can pay more money to have a wider seat, but the service is the same. I don't see what that does for anybody."
Midwest made $5.4 million in 2006 after losing nearly $65 million in 2005.
That is the appeal, said Mark Kiefer, consultant at CRA International in Boston.
"People can see this is an airline with some profit and growth potential."
Without Northwest, he said, TPG would have been harder-pressed to counter AirTran's bid.
Northwest has made a point of saying it is not the majority investor, which would cause it to have to revisit its labor contracts, for one thing, but also subject it to greater antitrust scrutiny.
"The larger the contribution, the more higher eyebrows will raise in Washington," Kiefer said. "Northwest is going to face some antitrust scrutiny because it's pretty obvious why they are doing this."
TPG has long experience in investing in airlines. It backed Continental Airlines and America West and recently lost a bid to buy Qantas, the national airline in Australia.
"You're not just buying the company, you're taking it private. What that buys you is being free of the pressure of Wall Street analysts and earnings expectations," Kiefer said.
"In a sense, you have more flexibility to implement your own strategic changes to make the company more profitable."
Northwest's pilots said Monday they were continuing to monitor the situation for "changes that affect the future of our pilot group."
Northwest's flight attendants, who are seeking contract changes to increase their pay, were less conciliatory, saying the company made the investment with money it took from labor in bankruptcy.
"Northwest should be concentrating on its own employees instead of other airlines," said Shawn Fivecoat, president of the Northwest branch of the Association of Flight Attendants council in Memphis.
Both the U.S. Department of Justice and fans of Midwest Airlines agree that a proposal to sell the carrier is worth a long look, although for different reasons. Earlier this month, agency...
Airline agrees to $17-a-share deal; AirTran accept's board's decision
An investors group that includes Northwest Airlines Corp. has offered to buy Midwest Air Group for more than $400 million, circumventing a hostile bid by AirTran Holdings Inc.
Follows failed effort to acquire Midwest