United Parent To Buy US Airways
Wednesday, May 24th 2000, 12:00 am
By: News On 6
NEW YORK (AP) â€” United Airlines' parent is buying US Airways for $4.3 billion in cash in a deal that would give the world's largest airline vastly larger operations along the East Coast and nearly triple its daily flights to more than 6,400 a day.
The boards of United's parent company, UAL Corp., and US Airways Group Inc. have approved the deal, the companies said today.
In addition to the cash payment, UAL Corp. will assume $7.3 billion in debt and aircraft operating leases as part of the deal. A combined company would have more than $25 billion in annual revenue and more than 145,000 employees.
``The addition of US Airways will greatly improve United's ability to serve customers in the East and to open its worldwide network to them,'' UAL chairman James Goodwin said.
The chairman of US Airways, Stephen Wolf, said the agreement allowed the company to become a ``world-class global carrier in a single stroke.''
The deal is subject to approval by shareholders and regulators.
United promised to freeze some domestic fares for two years following the acquisition, except for increases to pay for fuel costs and inflation. It also said it would sell some operations in the Washington, D.C., area to relieve competition concerns.
The companies said their frequent-flier programs will be consolidated, and will offer more destinations than any other airline. United is part of the international Star Alliance, which includes Air Canada and Lufthansa among others, and has a separate mileage-sharing deal with Delta Airlines. US Airways and American Airlines, the world's second-largest airline, have their own mileage partnership.
Under terms of the deal, UAL will pay $60 in cash for each US Airways share, a 131 percent premium over US Airways closing price of $25.93 3/4 in trading Tuesday on the New York Stock Exchange. Shares of US Airways surged in late morning trading today, rising $22.43 3/4 , or 87 percent, to $48.37 1/2 , while United fell $8.50 to $51.87 1/2 .
United, based in Elk Grove Village, Ill., has major hubs in Chicago, Los Angeles, Denver, Washington, D.C., and San Francisco. US Airways â€” the nation's sixth-largest airline and the world's 10th-largest, based in Arlington, Va. â€” has hubs in Pittsburgh, Charlotte, N.C., and Philadelphia.
With more than 2,300 flights a day, United flies more than 570 jets to more than 130 destinations in the United States and 25 other countries. US Airways and the regional carrier US Airways Express offer more than 4,100 flights daily in 38 states and 12 countries.
In announcing the deal, United said it would offer 64 new daily nonstop domestic flights and 29 overseas flights.
The two airlines tried to merge in 1995, but failed after United's powerful pilot's lobby exerted pressure. United is 55 percent owned by its employees; their approval will be necessary for any deal to succeed.
Captain Rick Dubinsky, who heads United's Air Line Pilots Assocation unit, said the union has strong concerns about the proposed merger because the airline and the union have not reached a new contract agreement. The new company must also take on what Dubinsky described as a difficult task â€” merging the US Airways pilots into the United pilot seniority list.
Antitrust regulators may not let the acquisition go through unscathed. The Justice Department has sued to challenge Eagan, Minn.-based Northwest Airlines acquisition of a controlling stake in Houston-based Continental Airlines.
In Washington, Jennifer Rose, spokeswoman for the Justice Department's antitrust division, said, ``We're aware of the transaction, and we will review it closely.''
In an effort to placate regulators, UAL plans to sell the bulk of its operations at Washington's Reagan National Airport to Robert L. Johnson, the chairman and chief executive of BET Holdings II Inc., which runs cable channel Black Entertainment Television.
Johnson, who has been a member of US Airway's board since 1998, will use the assets to start his own airline, DC Air. UAL would keep the US Airways Shuttle, which makes flights between Washington, New York and Boston.
In a statement, Johnson said DC Air, which would be the nation's first black-owned airline, will serve 44 cities with 122 daily departures from Reagan National. ``US Airways has served Washington and the surrounding Maryland and Virginia communities extremely well,'' he said. ``We will more than match the quality of the service, and will do so with a talented team of management and union employees that will make all of us in the nation's capital proud.''
Julius Maldutis, an analyst with New York-based CIBC World Markets Corp., said he expects federal approval of the deal, especially since very little overlap exists between the airlines.
United flies primarily east-west routes, while US Airways flies north-south routes on the East Coast.
A successful deal will likely spur other mergers and alliances, Maldutis said: ``This is going to trigger a major realignment in the airline industry.''
Labor issues that stopped the 1995 combination likely will not be as much of a factor, Maldutis said, pointing to a number of recent contracts signed by the respective airlines and their unions. In addition, three of UAL's 12 board positions are held by labor representatives.
Nonetheless, United pilots have been involved in a job action, refusing to work overtime. That has caused United to cancel hundreds of flights in the past several days.
On the Net: