Questions fly in wake of merger plan - NewsOn6.com - Tulsa, OK - News, Weather, Video and Sports - KOTV.com |

Questions fly in wake of merger plan

Updated:
Analysts awaiting American's reaction to United's deal

UAL Corp.'s proposed purchase of US Airways Group Inc. puts pressure on American Airlines Inc. to make a counterbid or to seek a merger with another carrier, industry analysts said Wednesday.

These experts predict that a UAL-US Airways combination would create a nationwide megacarrier that would make life more difficult for Fort Worth-based American.

By buying US Airways, UAL's United Airlines will strengthen its presence on the East Coast and add new flights to Europe, Latin America and the Caribbean while retaining its strongholds in the Midwest, West Coast and Asia-Pacific.

"I wouldn't be surprised if American either sabotages United's deal or launches its own takeover," said Adam Pilarski, a senior vice president and economist at Avitas, an aviation consulting firm in Chantilly, Va. "It makes at least as much sense for American to have US Airways as it does United."

US Airways chairman Stephen Wolf said the airline would look at other offers. American, the world's second-largest airline, declined to comment about UAL's acquisition or whether it would take any action.

UAL announced Wednesday that it will buy US Airways for $4.3 billion in cash and the assumption of $7.3 billion in net debt and aircraft operating leases. The deal would strengthen United's position as the world's largest airline, nearly tripling its total number of daily flights and boosting revenue by almost 50 percent.

The deal is expected to close in the first quarter of 2001 but could face hurdles in obtaining government and shareholder approvals. UAL will pay $60 a share to US Airways shareholders.

In today's airline industry, the combined UAL-US Airways would gain a critical competitive advantage with the breadth of its route network and its frequency of flights.

With the assets of the nation's sixth-largest airline, United will be able to solidify its lead over American in everything from the number of paying passengers flown per mile to market share and the number of daily flights.

"It makes American a more distant competitor," said Raymond Neidl, an airline analyst at ING Barings Inc. in New York.

If the merger wins government and regulatory approval, American would face stepped up competition from United in many cities around the country, including Houston; Memphis, Tenn.; Miami; Philadelphia; Pittsburgh; and Cincinnati.

Mr. Wolf said the agreement between UAL and US Airways contains a provision for breakup fees if the merger falls apart.

"We are committed to one another, but if someone else comes along, we will have to respond."
The airline wouldn't comment about whether it had received any counterbids from American or if it had talked to carriers other than United during the last few months.

American has long been viewed as an ideal suitor for US Airways. As with United, US Airways would help American fortify its East Coast network with little overlap of existing operations.

The two airlines formed a frequent-flier agreement in April 1998, and they use the same information technology systems.

A possible bidding war between United and American for US Airways would ignite an already fierce rivalry between the world's two largest airlines.

The carriers have long vied with each other at Chicago's O'Hare International Airport, where both maintain hubs. In the past, they also have competed for new routes to Japan and for the former Pan Am routes to London's Heathrow airport. And this year, they are engaged in a race to see who has a better plan to offer more legroom aboard their planes.

US Airways' Mr. Wolf, who ran United in the late 1980s and early 1990s, and former American chairman Robert L. Crandall were even said to have maintained an intense personal rivalry. Mr. Wolf began his career as a trainee in American's cargo operations in San Francisco and stayed for 15 years before leaving in 1981 to join Pan Am.

If American makes either a hostile bid for US Airways or a friendly counteroffer, the No. 2 airline would be following a strategy outlined by Mr. Crandall in 1995. At the time, US Airways had revealed it was holding acquisition discussions with both United and American.

"On the other hand, if United seeks to acquire USAir, we will be prepared to respond with a bid, or by other means as necessary, to protect American's competitive position," Mr. Crandall wrote employees in a letter. He declined to comment Wednesday.

In 1995, United wound up bowing out of the discussions, citing opposition from its labor unions and averting a potential bidding war with American. But last November, United's chairman and chief executive James Goodwin approached US Airways' Mr. Wolf with a deal in mind.

The stock of AMR Corp., American's parent company, fell $2.56 a share Wednesday to close at $30.06. Meanwhile, UAL's stock plunged $7.19 a share to end the day at $53.19 while shares of US Airways soared $22.69 a share to $49.

Whether or not a bidding war erupts for US Airways, the airline's proposed merger with United is likely to set off a new round of consolidation in the airline industry, analysts said.

Rather than a counterbid, American may also seek to expand by acquiring another airline. Among possible acquisition targets: Alaska Airlines, Northwest Airlines and Midway Airlines.

US Airways, after all, has some of the highest costs in the industry and troubled labor relations. It also is facing growing competition from low-cost carriers such as Dallas-based Southwest Airlines Inc.

"If the merger goes through, American might start taking a good hard look at Northwest," Mr. Neidl said.

Stuart Klaskin, an independent aviation consultant based in Miami, said a UAL-US Airways deal could also trigger a round of groundbreaking new investments in foreign airlines by established U.S. carriers.

"This deal may have an effect on U.S. carriers' ability to do transactions with foreign-owned carriers," he said. "A merger with another U.S. carrier is not good enough."

If American were to hold back and refrain from teaming up with any airline, it could benefit from possible difficulties United may encounter as it struggles to integrate US Airways, said Michael Boyd, an aviation consultant in Evergreen, Colo.

"United will be tied up for three years, and American can make hay while the sun shines," he said.

But when it comes to possible acquisition targets, US Airways remains the largest and most attractive prize, industry experts say.

"There isn't a huge number of airlines left," Mr. Pilarski said. "This is the last big opportunity."
Powered by Frankly
News On 6
303 N. Boston Ave.
Tulsa, OK 74103
Newson6.com is proud to provide Oklahomans with timely and relevant news and information, sharing the stories, pictures and loves of Oklahomans across our great state.
All content © Copyright 2000 - 2017 KOTV. Oklahoma Traveler™ is a registered trademark of Griffin Communications. All Rights Reserved.
For more information on this site, please read our Privacy Policy, and Terms of Service, and Ad Choices.