Midwest Airlines (AMEX:MEH) shares continue to trade near their 52-week highs despite an earnings warning as AirTran Holdings (NYSE:AAI) renewed its fight to force Midwest into merger talks. Shareholders are now beginning to seriously question whether or not the Wisconsin-based carrier can perform on its own or whether it would be better off merging with Airtrans.

Midwest executives have entrenched themselves with strong poison pill provisions that have prevented any possibility of a merger despite AirTran's 59% stake in the company. AirTran has already announced the nomination of three candidates to Midwest's Board of Directors and many industry analysts believe that they will successfully overtake the company.

The news also comes among many difficulties facing the airline industry. Midwest recently issued an earnings warning that hinted towards a decline in not only the company's quarterly earnings but also their yearly earnings amid weaker fares that "may continue for some time". Meanwhile, AirTran also faced an analyst downgrade after weaker company and industry financials.

So, what does this mean for shareholders? Well, clearly the airline industry is having issues that may not be resolved for some time. This makes the idea of a buyout sound rather favorable. The current deal would put AirTran's current offer of $389 million at around $15.89 per share - a 9.5% premium to today's stock price. The real value, however, would be seen if many shareholders rejected the offer and AirTran was forced to sweeten it. Unfortunately, given the negative earnings warning and AirTran's large holdings this may no longer be a likely situation. Regardless, this is definitely a stock worth watching!

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