Midwest Airlines plans to cut its fleet by nearly half, lay off hundreds of employees and negotiate pay cuts of up to 65% from union pilots and flight attendants to avoid a Chapter 11 bankruptcy filing, union officials said Wednesday.
Those moves, including service reductions from Milwaukee's Mitchell International Airport, are in the works as Midwest executives work to create a restructuring plan within 30 days - racing to get a plan created before the airline runs short of cash.
Midwest, like other airlines, has seen profits disappear as fuel costs have nearly doubled over the past year.
In a memo to employees, Midwest Chairman and Chief Executive Officer Timothy Hoeksema said investment group TPG Capital, the airline's majority owner, has agreed to provide additional financing, but TPG partners "need to see a workable plan so their investment makes sense." He said the restructuring plan, which would seek concessions from jet leasing companies and other Midwest vendors, would provide "a low cost structure to compete in this new energy economy."
Midwest announced last week that the plan includes phasing out a dozen MD-80 jets used for charter service as well as regular passenger service to leisure destinations and West Coast cities. That would leave Midwest with 25 Boeing 717 jets, which are more fuel-efficient than the MD-80 jets.
But Jay Schnedorf, head of the Midwest pilots union, said Wednesday that he has received accounts from employee meetings that Midwest executives say the company also 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.
Individual pilots have been told by some managers that the restructuring would leave Midwest with about 200 pilots, Schnedorf said. Midwest now has 400 pilots, although that number will be down to around 365 by July because of a previously announced reduction.
Midwest also intends to cut about half of its 400 union flight attendants, said Dory Klein, head of the Midwest chapter of the Association of Flight Attendants.
Union balks at cuts
Through an initial presentation to the pilots union, Midwest management is seeking pay cuts ranging from 45% to 65%, Schnedorf said. Those cuts are not acceptable, he said, and the union continues to seek additional financial data from management in order to respond.
The company is seeking pay cuts of 34% to 56% for the union flight attendants, Klein said.
The fleet reduction also would bring job cuts for other employees, including ground crew members and mechanics, said Vaughn Cordle, who operates Airline Forecasts LLC, an Arlington, Va.-based consulting firm. About 1,100 jobs could be eliminated, he said, basing his estimate on how many employees Midwest has per aircraft.
Midwest spokesman Michael Brophy said the airline continues to have discussions with the union leaders but will not comment publicly on those talks. He said it was too early to discuss estimated job cuts, and no final decisions have been made on aircraft reductions.
"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 said in a statement.
"Obviously, Chapter 11 is not our most desirable destination," Brophy said. "That's why we're working on this restructuring plan, so we can avoid that scenario."
Midwest Air Group Inc., the parent of Midwest Airlines, has 3,065 employees, Brophy said. The company cut 380 jobs this spring when it hired Utah-based SkyWest Airlines Inc. to handle all Midwest Connect regional carrier flights, a move designed to save money.
TPG holds a 53% stake in Midwest, and Northwest Airlines Corp. owns 47%. In a Chapter 11 bankruptcy, Midwest would reorganize its finances under court supervision.
Downgrading jobs
The company's presentation to the pilots calls for sharply reduced wage rates, as well as several position downgrades from captains to first officers, Schnedorf said. In one scenario, a pilot now classified as a junior captain, downgraded to first officer and combined with the pay cut, would see his annual salary drop from around $120,000 to around $31,000 to $35,000, he said.
"It's a catastrophic impact on the families," Schnedorf said.
For the flight attendants, the proposed pay cuts would be "devastating," Klein said. She said the flight attendants have been working under concessions granted in 2003, when Midwest last faced a possible Chapter 11 filing. Klein said the starting pay for Midwest flight attendants is just a bit above minimum wage, which is $6.50 an hour in Wisconsin.
"We've sacrificed so much," Klein said. "We really don't have much more to give."
Klein also said Midwest management was responsible for much of the company's financial trouble. She said the MD-80s should have been replaced by more fuel-efficient jets long ago.
Union leaders want to meet with executives from TPG and Northwest, but so far those requests have gone unfulfilled, Schnedorf said. He said the pay cuts initially presented by the company could result in some pilots simply quitting their jobs.
Along with the job cuts, Midwest, like other airlines, will be making service reductions this fall in an attempt to conserve cash and climb back into the black. The company has not yet announced its autumn schedule.
Opening for AirTran?
The pending route cuts, especially to West Coast destinations, could open the door for AirTran Airways to add more departures at Mitchell, said Michael Boyd, president of Boyd Aviation Group Inc. of Evergreen, Colo.
AirTran's corporate parent, AirTran Holdings Inc., attempted a hostile takeover of Midwest last year but was outbid by TPG/Northwest. AirTran had vowed to greatly increase departures from Milwaukee it if succeeded in buying Midwest. But AirTran, like other major airlines, lately has been announcing service reductions to cope with skyrocketing fuel prices.
Another possible outcome: the eventual folding of the downsized Midwest operations into a merged Delta-Northwest, according to Cordle, of Airline Forecasts.
"It appears to me that the Midwest fleet is no longer needed," Cordle said.
Delta Air Lines Inc. is buying Northwest and would acquire its 47% stake in Midwest if that merger is completed.
Delta executives have said their plan is to have Midwest continue to operate as a stand-alone airline. But Cordle, whose firm crunches airline financial performance numbers, believes Delta management wants to reduce the variety of aircraft types it will carry once the purchase of Northwest is completed.
With Midwest operating just 20 or so Boeing 717 jets - which are no longer made - eliminating that fleet makes sense, Cordle said.
Delta's outlook
There are no changes in Delta's plans regarding Midwest, Delta spokeswoman Susan Elliott said. In April, Delta Chief Executive Officer Richard Anderson said it was in Delta's interest for Midwest to maintain its independent status, and Anderson pledged not to interfere with Midwest's operations.
A TPG spokeswoman said the firm's partners had no comment on Midwest's restructuring plan and the future of the airline.
Midwest executives believe the restructuring plan would position the company for growth and profitability, even with oil prices at around $135 a barrel.
Despite the pending route cuts, Midwest Airlines and Midwest Connect "will continue to operate in partnership to offer quality service to business destinations," Hoeksema's memo said.
Notice the last line about how they will continue to offer quality service to BUSINESS destinations? I doubt that means Florida!
I just hope AA is a safe bet.
Like Inkmahm said, nothing in the airline industry is safe right now.
Hopefully, we'll be able to keep the room an extra night at Disney!! 
