UNITED, US Airways call off merger after Justice Dept. says it would block the deal

Saturday, July 28th 2001, 12:00 am
By: News On 6

CHICAGO (AP) _ Their merger now officially dead, United Airlines and US Airways will now try to rebound from setbacks they suffered during their pursuit of a deal that would have created the world's largest airline.

News of the failed merger came hours after the Justice Department announced Friday it would sue to block the $4.3 billion acquisition. Consumers would pay the price if the deal were allowed to go forward, government officials said.

UAL Corp., the parent company of United Airlines, is to pay US Airways $50 million as part of the termination agreement.

UAL has faced several struggles since it announced last year that it was buying US Airways. Illinois-based United has slipped to No. 2 behind American Airlines and lost $1 billion since the merger was proposed as it dealt with labor and operational problems.

``United has to play catch up,'' said airline industry consultant Michael Boyd. ``While United Air has been monkeying around, American Airlines has leapfrogged them.''

Virginia-based US Airways, the sixth-largest U.S. airline, has said a merger with United was its best chance to remain profitable in an increasingly competitive industry.

But analysts contend that if a few changes are made, US Airways can be successful.

``US Air has a good very future, but they have to get the two people at the top out of there. You can't run airlines with management telling the world it can't survive,'' said Boyd, who heads Evergreen, Colorado-based Boyd Group.

United spokeswoman Susana Leyva said the company would not comment beyond the statement it issued:

``UAL Corporation intends to work with US Airways to determine the appropriate steps that need to be taken now that US Airways has acknowledged that the merger with United will not go forward,'' United said.

US Airways said it was disappointed that the deal was called off.

``We nevertheless must respect the Justice Department's decision,'' US Airways said in a statement.

United tried to end the deal earlier this summer because of labor problems and a worsening economy, but weeks ago it agreed to pursue the merger after US Airways balked at the proposed separation.

The Justice Department said the merger would give United a monopoly or duopoly on nonstop service on over 30 routes and substantially limit competition on several others.

United and US Airways tried to ease regulators' antitrust concerns with plans for a new airline partly owned by American Airlines to take over US Airways flights out of Washington and by letting American take more than half of US Airways East Coast shuttles.

But regulators said the manufactured competition could not replace true market-driven competition.

``While mergers can further competition, this one does not,'' said Attorney General John Ashcroft. ``If this acquisition were allowed to proceed, millions of consumers . . . would have little choice but to pay higher fares and accept lower-quality air service.''

Shares of UAL closed down 29 cents to $33.63 on the New York Stock Exchange, where shares of US Airways fell 89 cents, or 5 percent, to $17.26.

With a formal rejection of the merger, United can now return to the drawing board to get back to profitability, said Ray Neidl, a New York-based analyst for ABN Amro.

``United can try to get back to trying to fix their airline and cut back the losses they're experiencing, which are much larger than the rest of the industry's,'' he said.