By Brian E. Clark
WisBusiness.com
TPG Capital out of Fort Worth, Texas, is known as the largest private equity player in the airline industry.
It owns Ryanair, one Europe’s biggest fliers, and has bought and sold Continental and America West airlines. Just this spring, it bid $4.5 billion for Iberia, a Spanish airline.
However, its pending purchase of Midwest Air Group for $400 million ($16 a share) may be so pricey that the group will be hard-pressed to make any money out of the deal, says Brian Nelson, an airline analyst with the Morningstar research company in Chicago.
“I have a lot of questions about this,” said Nelson. “In the near-term, there probably won’t be a lot of changes at Midwest. But long-term, they will have to do something to exact the kind of premium that a private equity shop usually demands.”
But Scott Hamilton, who runs Leeham Co., a Washington State-based airline industry consulting firm, is more upbeat about TPG’s gamble.
“They have a track record of turning airlines around and growing them,” he said. “If they can expand Midwest and then take it public again, they could make money.”
Both analysts, however, say Northwest Airlines, a 40 percent partner of TPG in this transaction, is a winner because it effectively stops AirTran Holdings, from establishing a hub in its backyard.
“They have been pretty savvy with this,” Nelson said. “This makes a whole lot of sense for them. Northwest is the minority partner in this deal, but I’m wondering if NW didn’t have a lot to do with putting it together.”
