REPORTS: United dropping plans to acquire US Airways, citing regulatory hurdles, worsening economy

NEW YORK (AP) _ United Airlines is abandoning its $4.3 billion purchase of US Airways because it is convinced the merger won't win regulatory approval, published reports said. <br><br>United informed

Monday, July 2nd 2001, 12:00 am

By: News On 6

NEW YORK (AP) _ United Airlines is abandoning its $4.3 billion purchase of US Airways because it is convinced the merger won't win regulatory approval, published reports said.

United informed US Airways Friday that it wants to discuss terminating their agreement before Aug. 1, the first day either side can alter the deal, The New York Times and USA Today reported in Monday's editions, citing sources familiar with the discussion.

United, the nation's second-largest airline, will have to pay US Airways a $50 million breakup fee if it ends the agreement after Aug. 1. Before that date, the breakup fee is substantially higher, but United is asking to pay only $50 million.

Representatives for both airlines Sunday declined to comment to The Associated Press on the reports.

In addition to the regulatory issues, the newspapers said United was worried about a worsening economy.

In an effort to ease anti-competitive concerns and ensure government approval, United agreed in January to sell some US Airways assets to American Airlines, including half of US Airways' Washington-New York-Boston shuttle.

But Justice Department lawyers appeared to remain concerned about the concentration of market power in Washington and other markets, prompting Transportation Secretary Norman Y. Mineta last month to say he expected the government to reject the proposed merger.

A weakening economy is also apparently hurting United's parent, UAL Corp., and the airline has become reluctant to engage in a costly, complicated merger, reports said.

United signed a contract with its pilots last fall on the assumption the merger would be approved, USA Today reported. The pact gave pilots 45 percent raises over four years.

United reported a worse-than-expected first quarter loss of $313 million on revenues of $4.42 billion and has already said it expects a double-digit decline in revenue for the second quarter.

United would have paid $4.3 billion in cash for US Airways shares, or about $60 a share, more than double the US Airways current stock price of $24.30.