Clash of Cultures: Priorities differ at AirTran, Midwest

As difficult as AirTran's yet-unfulfilled quest to buy Midwest Airlines has been, the complex transaction could be the simple part.

If AirTran wins its takeover battle in the coming weeks, airline and labor experts say it will face far more daunting tasks in melding two airlines with disparate histories, cultures and customer service philosophies.

"Merging corporate cultures can be much more problematic than any other aspect of airline mergers," said Dean Headley, a Wichita State University professor who studies the airline industry. "Labor problems can make mergers untenable in certain locations. In Midwest's case, employees will feel completely let down by any buyout."

AirTran managers are doggedly pursuing what would be the first hostile takeover among low-cost carriers with its proposed $389 million acquisition of Milwaukee-based Midwest.

AirTran and analysts that back the deal point to the logic of expanding AirTran's base beyond Atlanta, where two-thirds of its flights originate. Both carriers fly Boeing 717s, and their route networks have almost no geographic overlap.

But even consensual airline mergers have gone awry in the past with workers feeling shorted, faulty technology integration and the burdens that come with heavy debt loads.

Airline experts say a hostile airline takeover will invite labor troubles in an industry that requires close cooperation among many work groups.

"Midwest's hallmark has always been an extraordinarily high level of customer service," Headley said. "AirTran has always focused on low prices. Those two cultures are going to be extremely difficult to reconcile and blend successfully."

Midwest managers have launched a vocal drive against an AirTran takeover and lined up grass-roots support for local ownership as well as extensive political support in their home state of Wisconsin. More than 38,000 Midwest customers signed an electronic petition against the AirTran takeover.

AirTran's $15-a-share offer for Midwest attracted 57 percent backing from Midwest shareholders as of May 16, in a tender offer that continues into June. AirTran is gearing up for a proxy fight at Midwest's annual meeting on June 14, hoping to install three sympathetic directors on its board.

Wisconsin law gives Midwest broad anti-takeover measures, however, and the company appears ready to use them to resist an AirTran takeover.

AirTran officials said Midwest workers will gain from generally higher pay, and AirTran said it intends to boost operations in Milwaukee with more flights and additional employment. In a regulatory filing, AirTran said it plans to add 74 daily flights in Milwaukee, 29 new destinations and 1,100 more jobs.

"We intend to flood the market with low fares, stimulate demand and create new opportunities for employees," said Tad Hutcheson, an AirTran spokesman. "There's a tremendous amount of work to be done. But the actual integration of the two airlines should be fairly smooth."

Carol Skornicka, general counsel at Midwest, characterizes Midwest employees as loyal and steadfast with strong traditions and deep community ties.

"We have a saying that culture eats strategy for lunch," she said. "We've got a very unique culture in which pilots stay on the planes and help flight attendants clean up the cabin and get ready for the next flight.

"Our CEO does the same thing. We've gone through some tough times together, and people feel our success is their personal accomplishment."

When US Airways launched a hostile takeover bid for Delta Air Lines last year, Delta employees spearheaded the airline's strident and ultimately successful resistance. Delta pilots vilified US Airways Chief Executive Doug Parker as an opportunist and corporate vulture, and creditors cited the hostility of Delta line workers as a reason to reject the combination.

But Midwest pilots were slow to endorse the airline's stand-alone business plan, and their resistance to AirTran has been muted. They had been alienated by Midwest's decision to outsource regional flying to SkyWest and threatened a strike in 2000.

"The labor groups at Midwest have been conspicuously quiet," said Darryl Jenkins, head of the Aviation Institute at George Washington University. "It's an entirely different situation than we saw at Delta."

Gary Chaison, a labor relations professor at Clark University in Massachusetts, said AirTran's task is manageable because turmoil in the airline industry has made it unrealistic for airline workers to expect to spend their entire careers at a single carrier.

"Workers are more focused on keeping their jobs than loyalty to any particular carrier," he said. "They've been through numerous furloughs. Their pay has been dramatically reduced. Airlines don't provide lifetime employment the way they once did, so workers' loyalty is more directed toward maintaining the professional standards of their crafts than they companies they work for. If a merger can provide greater stability, employees will welcome those changes."

Labor relations lawyer Lowell Peterson agrees.

"The social contract between airlines and their employees is pretty tattered these days," he said. "Airline employees used to have tremendous pride in being part of an airline family like Pan Am or Eastern. That doesn't really exist anymore."

AirTran has said it will eliminate Midwest's spacious all-business-class leather seating, fresh-baked cookies and other such amenities.

Michael Boyd, a Colorado airline consultant, said two-by-two seating in coach and other perks were rapidly disappearing anyway as Midwest added economy seats to planes that fly primarily on leisure routes.

"AirTran will bring more jobs, more flights and more job security," Boyd said. "When employees see that, it will take some of the sting out of the fact that it was a hostile takeover.

"Midwest employees will have to get new uniforms," he said, "but they'll be relieved they won't have to get new jobs."


* Emphasizes low prices.

* Wants to fly to more cities and create more jobs.

* Is trying to gain three seats on the Midwest board of directors.


* Emphasizes high level of customer service.

* Provides all-business-class seating and fresh-baked cookies.

* Has rallied customer and political support to keep the airline locally owned.



AirTran CEO Joe Leonard meets Midwest CEO Tim Hoeksema and offers to buy the Milwaukee-based carrier.

DEC. 7, 2006

Midwest's board formally rejects the AirTran offer.

DEC. 13, 2006

AirTran publicly launches a hostile bid for Midwest at $11.25 a share, or $288 million, a 24 percent premium at the time. Midwest later rejects the offer as "inadequate and opportunistic."

JAN. 11, 2007

AirTran raises its offer to $13.25 a share, or $345 million. Midwest rejects the sweetened bid.


AirTran boosts its offer to $15 a share, or $389 million, and says it won't raise it again.

MAY 16

AirTran gains the support of 57 percent of Midwest shareholders, but Midwest retains the right to use Wisconsin anti-takeover laws to block a transaction.


AirTran plans to install three directors on the Midwest board at Midwest's annual shareholder meeting.

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