NORTHWEST TERMINATES MIDWAY ACQUISITION
NORTHWEST TERMINATES MIDWAY ACQUISITION CHICAGO, Nov. 13 /PRNewswire/ -- Northwest Airlines, Inc., which
last month purchased 21 Midway Airlines gates at Chicago Midway Airport, has terminated a proposed transaction to acquire the remaining assets of Midway Airlines. John Dasburg, Northwest's president and chief executive officer, advised Midway Airlines chairman and chief executive officer David Hinson of the termination this morning. Northwest's board of directors voted last night not to approve the Midway transaction.
Northwest terminated the transaction five days after Midway Airlines president Thomas Schick advised Northwest that Midway could not resolve problems that were disclosed during Northwest's due diligence review of the transaction. Northwest based its initial evaluation of the transaction on Midway's 1990 results (using 1990 as a base year for reference purposes to avoid traffic and revenue aberrations resulting from the Gulf War and economic recession of 1991). In order to make this evaluation, Northwest requested from Midway its actual traffic and yield information. Midway specifically directed Northwest to rely for this analysis on data supplied by Midway to the Department of Transportation. Northwest recently learned that this DOT data was substantially inaccurate and seriously in error, understating traffic by approximately 13 percent and overstating yields by approximately 25 percent. This inaccurate Midway data resulted in a significant, substantial and unacceptable change in the principal term of this proposed transaction. In a letter to Schick terminating the transaction, Northwest general counsel Richard B. Hirst cited, among other issues, "the approximately $35 million deterioration in operating results arising from the discrepancy between Midway's 1990 DOT data and its 1990 actual traffic and yield data" and noted Midway's statement that it could not cure this discrepancy. In addition to the traffic and yield discrepancies, a preliminary environmental assessment revealed "significant potential for subsurface contamination problems" at the Midway hangars due to underground fuel storage tanks, according to ENSR Environmental Consulting and Engineering, which conducted this preliminary review. Also, the due diligence review revealed the existence of liens on numerous assets that Midway had agreed to deliver to Northwest free and clear. At the bankruptcy court hearing on Oct. 8, Northwest reserved absolute discretion for its board of directors to make the final decision on this transaction. That discretion was expressly acknowledged by Midway at the hearing, Hirst said. Northwest now leases the 21 Midway gates. Northwest will continue to sublease the 21 Midway Airport gates to Midway Airlines in accordance with the purchase agreement concluded last month. Should gates leased by Midway become available to Northwest for operation, Northwest will consider significantly expanding its service to the Chicago area through Midway Airport. Should Midway cease any operations and Northwest decide to expand its service to and from Midway Airport, it is likely that Northwest will hire some Midway employees. -0- 11/13/91 /CONTACT: Northwest Airlines Corporate Communications, 612-726-2331/ CO: Northwest Airlines ST: Minnesota IN: TRN SU: AL -- MN009 -- 3967 11/13/91 12:55 EST
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|Date:||Nov 13, 1991|
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