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Trans States Wants to Join the Big Leagues of Regional Airlines

By Brett Snyder

Updated on: July 8, 2010 / 1:21 PM EDT / MoneyWatch

It's been a busy week for regional airline consolidation. The smaller of the two transactions, however, is the bigger headscratcher. It's no surprise that someone bought Compass, but it is surprising that the acquirer is . . . little Trans States Holdings?

It's quite surprising to see a relatively minor player in the regional airline world jump in to something like this, but it does make one thing clear. Trans States wants to be one of the survivors when the consolidation game is played out. That's not exactly what I would have expected.

Today, Trans States Holdings sits over two regional airlines. The first and original is former TW Express operator Trans States Airlines. Trans States was closely tied to TWA and then American after the takeover, but Trans States no longer flies under the American banner at all. Instead, the bulk of its 28 fifty-seaters fly under the United Express name with just a couple flying for US Airways.

The other regional airline, GoJet, flies 25 seventy-seaters for United Express. So it's nearly entirely a United shop. This acquisition of Compass will change that.

Compass was built by Northwest to be the operator of 36 seventy-six seaters that would start to take over routes from some of the mainline-operated Northwest DC-9s. It has continued to operate those for Delta since the Delta/Northwest merger.

So now, Trans States will add those airplanes to its fleet, even though they are a new fleet type and potentially conflicting with Trans States' recent aircraft orders.

Last year, Trans States announced that it had signed a letter of intent to buy up to 100 Mitsubishi Regional Jets (pdf). No firm order has been signed, and it's unclear which version the airline will purchase (if it does indeed go through with it), but that airplane tends to compete with the very same aircraft Trans States will fly for Delta under the Compass name. It will be interesting to see if it ends up deciding to keep both fleets or if one goes away (or, possibly, never gets delivered in the first place).

So why exactly is Trans States doing this? My guess is that it's a diversification play. With only a couple of airplanes flying for US Airways, Trans States is nearly an exclusive operator for United. With the Continental/United merger potentially eliminating the need for some regional service, Trans States must be getting a little nervous.

This purchase was cheap -- only $20.5 million -- and it gets Trans States a new, steady stream of revenue from Delta for 10 years. This should, theoretically, be able to keep the airline going if Continental/United decides to go a different way in the next few years. It also shows Trans States as an airline that wants to be on top when consolidation happens.

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Photo via Flickr user Airliners