Sans fanfare, reborn Midway takes off into turbulent skies

 - January 14, 2008, 7:58 AM

Morrisville, N.C.-based Midway Airlines has reinvented itself for the sixth time in its checkered history, this time as a US Airways Express affiliate flying Bombardier CRJs. The bankrupt airline that refuses to yield to seemingly impossible odds quietly returned to the skies once again on January 1, when it launched services between Raleigh-Durham International Airport, N.C., and Ronald Reagan Washington National Airport with a single used 50-seat jet leased from Bombardier Services.

Both Midway and US Airways have assumed a curiously low profile since the major airline took a 31.5-percent equity stake in Midway in return for $2.4 million in startup funding and as much as $7 million for lease deposits on six CRJs. Although a US Airways spokesperson referred inquiries about aircraft delivery schedules to Midway, the regional airline’s CEO, Robert Ferguson, declined to respond to AIN’s requests for an interview.

Given Midway’s history of fiscal crises and repeated attempts to restart operations since it closed for business shortly after 9/11, Ferguson’s reticence is understandable. Hundreds of creditors await word on the airline’s intentions to repay them since the company filed for bankruptcy on Aug. 13, 2001. At press time Midway had yet to file a reorganization plan to the bankruptcy court, although it promised to do so by the end of last month. As part of the plan, Midway must disclose the amount of money it owes and how it plans to repay its creditors. If the creditors vote to accept the plan, it becomes a binding contract.

Expected to form the basis of Midway’s reorganization, the deal with US Airways features a so-called “cost plus” revenue-sharing agreement, under which the major airline pays Midway’s operating costs in addition to a predetermined profit margin. The contract calls for Midway to place into service as many as 18 regional jets by the middle of the year.

At the start of last month Midway flew a single CRJ three times daily between RDU and DCA, and planned to add a fourth flight on the route by the end of month. A second CRJ, scheduled for delivery early this month, will replace Chautauqua Airlines ERJ-145 service between Raleigh-Durham and New York La Guardia on February 9, according to US Airways. On the same day, Midway plans to start flying a single round trip between DCA and Birmingham, Ala., a route on which Mesa Air Group will also contribute a daily flight using one of its Embraer ERJ-145s. According to the Air Line Pilots Association, many of whose members hold a vested interest in Midway’s re-emergence, the airline will introduce service to Charleston, S.C., and Jacksonville, Fla., later this month, and begin flying to Nashville, Tenn., and Myrtle Beach, S.C., next month.

Although its offices remain in Morrisville, N.C., Midway plans to domicile some 85 percent of its pilots at DCA, implying Washington will host most of its initial growth.

In accordance with the “Jets for Jobs” agreement signed by US Airways and ALPA
as part of their latest collective-bargaining agreement, furloughed US Airways pilots must fill half of all cockpit vacancies at Midway. At press time the airlines had scheduled 83 US Airways pilots for CRJ training, the first 18 of which started classes in Raleigh on January 10. Another 18 mainline pilots won spots in a February 1 class, followed by another 10 slated for February 21. Fourteen pilots awaited a March 14 class date; 10 more were scheduled for April 14 and another 13 for April 25.

Over the same period, 83 of 374 furloughed Midway pilots will return to work as well. Midway opened operations with a total of roughly 40 employees. By the time it reaches its planned complement of 18 RJs, it will likely need more than 300. During its peak in the late 1990s, it employed 2,700.

A product of airline deregulation in the late 1970s, the “original” Midway went bankrupt in 1991 after more than 12 years of operations from Chicago Midway Airport. Two years later, a group of Chicago investors bought the name and operated a limited schedule out of the south side airport until 1995, when they moved the operation to Raleigh-Durham to fill a vacuum left by American Airlines’ departure. In 1997 new investors bought a controlling stake in the airline and installed Ferguson as CEO. Under Ferguson’s watch the company went public and grew to become RDU’s largest tenant.

But by mid-2001, a “calamitous” drop in business traffic in the technology-rich Raleigh-Durham area, increasing fuel prices, Midway’s loss of a six-year-old frequent-flier agreement with American Airlines, downward yield pressure from Southwest Airlines and increased competition from American Eagle regional jets proved too much to overcome. On Aug. 13, 2001, Midway declared bankruptcy, shed 700 employees and grounded 13 CRJs and four Fokker 100s. Less than a month later, a day after the 9/11 attacks, Midway closed its doors, despite securing $15 million in debtor-in-possession financing a week earlier.

Undaunted, Ferguson secured $10.1 million from the government’s terrorism relief fund and reopened for business on December 19. As part of a plan to cut unit costs by 30 percent, Midway returned all of its remaining fleet of 11 CRJs to their owners, leaving it with a uniform fleet of five Boeing 737-700s. But by mid-July last year, the company had ceased operations once again, after US Airways approached Ferguson with an offer to fly CRJ feed under the US Airways Express livery.

Originally planning to start US Airways services to three Northeast cities in October, Midway negotiated new labor agreements with its pilots and flight attendants, but failed to secure leases on 18 regional jets and a $5 million capital loan by US Airways’ August 31 deadline. Although US Airways extended the deadline until October 31, Midway still could not find the needed financing. Resigned to its would-be partner’s impotence, US Airways dropped its requirement for the capital loan and arranged for the funding needed to secure the aircraft leases in return for an equity position in a reorganized Midway. Finally, on December 19 a bankruptcy judge approved the plan, allowing for Midway’s return to the skies on January 1.