Monsters of the Midway and Rooting Through the Regionals

You'd never know it was midsummer in the airline industry. Usually around this time the airlines are so busy making money that our usual litany of intrigue, backstabbing, executive defections, labor unrest and other excitement is fairly brief.

Not this summer. Forget that Danielle Steele novel. Heck, this sector is more entertaining than the latest episode of Jerry Springer.

Let's take some short looks at a number of things flying around.

Midway Millstone

After the close Wednesday, Midway Airlines (MDWY Quote) made an announcement that mostly didn't surprise us: Acknowledging pilot attrition and escalating costs, the airline said it won't meet analysts' earnings expectations for the second quarter or year. Recall that two months ago we expressed concern over the airline's problems with pilot attrition, fare pressure and escalating costs.

For its second quarter, Raleigh-Durham, N.C.-based Midway expects to report earnings of 40 cents to 45 cents a share, down from 54 cents a year earlier and short of the 53-cent consensus estimate. For the year, Midway expects to fall shy of the $1.54 a share it earned a year ago and the $1.68 analysts were expecting.

In a move we hadn't anticipated, though, Midway also said it would take about $1 million in charges to cover costs of retiring four Fokker F100 aircraft and one Airbus A320 jet. Yes, you read that correctly. Midway, Airbus A320. Long story. Don't ask. Just think white elephant.

Just last month at the Paris Air Show, Midway surprised everyone, including us, by announcing an order for latest-generation Boeing (BA Quote) 737s. Needless to say, that news sent a message that the business plan at Midway was undergoing some serious revision.

Bedford Leaves Mesaba

Bryan Bedford resigned late Tuesday night as CEO of Mesaba (MAIR Quote). But Bedford wasn't missing in action for long. Wednesday morning, he surfaced as president and CEO at Chautauqua Airlines, a US Airways Express carrier based in Indianapolis and owned by Wexford Management.

This one is no surprise to us, although we think Bedford had done a good job at Mesaba. But let's face it, he had made no bones about how he felt about Northwest Airlines (NWAC Quote) management, particularly their "inept" handling of the strike last year. This is fine, except that it amounts to biting the hand that feeds you: Mesaba is a fly-for-hire outfit, with Northwest holding the contract strings. Not to mention the revenue strings.

We'd expect to see someone named at Mesaba who is a tad more Northwest-oriented.

Like that one?

Hot Cargo

As if there weren't enough mergers-and-acquisitions rumblings around here, you can add the entire cargo sector to the list. Why? Simple. United Parcel Service said Tuesday that it would buy Challenge Air Cargo, a dominant player in Latin America. We see UPS' move as insurance against FDX (FDX Quote), which is building a new center in Miami and wants to expand its coverage of Latin America.

Which brings us to another cargo carrier, Atlas Air (CGO Quote). Atlas also just happens to be flying a lot of cargo out of Miami, and management at Atlas and FedEx are rather chummy. Rumors about a possible deal between Atlas and FedEx have been on and off for some time. Yesterday, they were hot and heavy again, as shares of Atlas jumped 8% to close at 32 1/4. Oh, yeah, some reports had the stock bouncing up on news of a new contract with Air France. Nope. There was more moving the stock.

Personally, we don't think Michael Chowdry, Atlas' CEO, would let the airline go for 32 and change.

And even Kitty Hawk (KTTY Quote), the cargo carrier we liked so much that proceeded to enter into the merger from hell with Kalitta, has seen a tremendous increase in volume of late. Shares in the stock were up 3% yesterday to close at 7 7/8, but volume was about eight times the 30-day average. This has been going on for a couple of days. What would make Kitty valuable? Planes, a location in Miami gained thanks to the Kalitta merger, and the core business.

Regionalism

Just remember what we said at the beginning of the year: Regionals are the key. The big boys cannot easily gobble up one another right now, but they can solidify relationships with their regional carriers. We've already seen four regional acquisitions this year. We expect to see more, and we wouldn't be surprised to see some surprises in the mix. Case in point is Atlantic Coast (ACAI Quote). Shares have been extremely low, as we have noted here previously. And think about what a strategic gem Atlantic Coast is.

Right now Atlantic's a strategic gem to partner United Airlines, a unit of UAL (UAL Quote). But Atlantic Coast is a free agent. It's not owned by United. Comair (COMR Quote) is the other good example. Comair and Delta Air Lines (DAL Quote) have enjoyed an extremely good relationship for many years. But the 10-year contract between Delta and Comair is now up for renewal. And again, Comair is a free agent, though in this case, Delta does own a healthy stake in Comair. This one would be a bit more difficult to wrestle away, but it could be done.

We expect to see some movement on one or two more of the regionals before the end of the year.

We Stand Corrected

In our column last week about AMR's (AMR Quote) American Airlines, we suggested that both the Federal Aviation Administration and the National Transportation Safety Board would undertake safety reviews of the airline. That is, as several readers pointed out, not correct. We knew that -- we just wrote it incorrectly. Slap our wrist. The NTSB is conducting its own investigation of a crash in Little Rock, Ark. So, yes, while the NTSB is also investigating the airline for safety and training issues, that probe is separate from the FAA investigation.

Sorry, we were confusing on that point.

Tomorrow? Our short look at World Airways (WLDA Quote), and we see how the second quarter stacked up. Just a hint. We had two airlines post greater-than-100% gains for the quarter. The quarter. More about those hot, hot, hot results tomorrow.