AWA/USAir merger in days
05-12-2005, 02:25 PM
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AWA/USAir merger in days
Posted on Thu, May. 12, 2005
US Airways and America West appear on verge of merger
By Tom Belden
INQUIRER STAFF WRITER
US Airways and America West Airlines appear to be just days away from revealing plans for combining the companies into a single operation, a move with far-reaching implications for Philadelphia travelers, industry analysts say.
The airlines' parents, US Airways Group Inc. and America West Holdings Corp., acknowledged April 20 that they had been discussing a merger for two months. The companies haven't said anything since about what they may do, or when they may do it.
Kevin P. Mitchell, chairman of the Radnor-based Business Travel Coalition advocacy group, said Wednesday that he expects the airlines to say more about their plans in the next few days. On Tuesday, analyst Ray Neidl of Calyon Securities in New York said he anticipated an announcement by next week.
Spokesmen for the airlines wouldn't comment this week about when an announcement would be made.
Putting the two companies together would create the sixth-largest U.S. carrier, potentially making it a tough, low-cost competitor to Southwest Airlines, now No. 6.
Most analysts expect the new entity would have a large presence at Philadelphia International Airport, a US Airways hub with more than 5,000 employees. US Airways has 60 percent of the traffic at the airport, where Southwest has grown in just a year to be the second-largest carrier, with 6 percent.
But analysts say the deal faces big hurdles, starting with a need to raise about $500 million in new equity investment, including the $250 million that US Airways already has arranged from two regional airlines to help it to come out of Chapter 11 bankruptcy protection this summer. A merger agreement would need to provide a bankruptcy-court exit plan for US Airways, the analysts said.
America West, which made money last year and is in better financial shape than US Airways, would most likely be the acquiring company, but the new entity would probably use the better-known US Airways name, analysts said.
Any agreement would require approval of the companies' boards and controlling shareholders; U.S. Bankruptcy Court Judge Stephen Mitchell, who's overseeing US Airways' case; the federal Air Transportation Stabilization Board, which guaranteed post-Sept. 11, 2001, loans to both airlines; labor unions that represent the vast majority of employees at both airlines; and General Electric Co.'s aircraft financing unit, which owns jets leased to the carriers.
Both airlines fly Airbus and Boeing jets and would probably use the merger to reduce the number of older planes they fly.
Another potential obstacle to a deal, noted last month by Robert Ashcroft, an analyst with UBS Securities in New York, in a report to investors, is how Southwest would respond - especially since it has vowed to grow at Philadelphia airport if it can get more gates. Two-thirds of the airport's gates are now controlled by US Airways, mostly under leases that expire June 30, 2006.
Ashcroft said Southwest not only would be a fierce competitor on fares and service, but he also quoted others' speculaton that the discount giant might try to spoil an America West-US Airways party by bidding on US Airways assets. When AirTran Airways tried to acquire gates at Chicago Midway Airport last year from ATA Airlines, Southwest stepped in and outbid it.
"We think [Southwest] wants Philadelphia every bit as much as it wanted Midway," Ashcroft said.
Among the other challenges of merging two unionized airlines is how to integrate the workforces. Pilots and flight attendants traditionally have been able to choose their work schedules based on seniority. US Airways pilots have an average of 17 years seniority while America West has been in business only since 1983, which means it has a younger workforce.
The combined company could face morale problems if any large group of employees didn't believe it was treated fairly in the deal.
"Pilots especially are very territorial with their seniority," said Roger King, an analyst with Credit Sights in Greenwich, Conn.
Hanging over the discusions is the condition of the airline industry. All carriers' profitability is in jeopardy this year because of high oil prices, while revenue is weak because fares are at levels not seen since the early 1980s.
Most experts say that for the industry to make money again, one or more big airlines will need to go out of business or merge with others, as a way to reduce capacity, or the number of airline seats available for sale each day.
Mitchell said that he thinks consolidation is a "rational approach to the industry's problems." But when he looks at combining America West and US Airways, "Uunless there are some very signficant cost savings, I can't see it as being a real plus," because it won't reduce industry capacity enough.
Most Wall Street analysts are pessimistic about US Airways' survival beyond this year without joining forces with another carrier. The most optimistic thing that King could find to say about combining the airline with America West was that it could be a "way of liquidating US Airways in an orderly fashion."
US Airways and America West appear on verge of merger
By Tom Belden
INQUIRER STAFF WRITER
US Airways and America West Airlines appear to be just days away from revealing plans for combining the companies into a single operation, a move with far-reaching implications for Philadelphia travelers, industry analysts say.
The airlines' parents, US Airways Group Inc. and America West Holdings Corp., acknowledged April 20 that they had been discussing a merger for two months. The companies haven't said anything since about what they may do, or when they may do it.
Kevin P. Mitchell, chairman of the Radnor-based Business Travel Coalition advocacy group, said Wednesday that he expects the airlines to say more about their plans in the next few days. On Tuesday, analyst Ray Neidl of Calyon Securities in New York said he anticipated an announcement by next week.
Spokesmen for the airlines wouldn't comment this week about when an announcement would be made.
Putting the two companies together would create the sixth-largest U.S. carrier, potentially making it a tough, low-cost competitor to Southwest Airlines, now No. 6.
Most analysts expect the new entity would have a large presence at Philadelphia International Airport, a US Airways hub with more than 5,000 employees. US Airways has 60 percent of the traffic at the airport, where Southwest has grown in just a year to be the second-largest carrier, with 6 percent.
But analysts say the deal faces big hurdles, starting with a need to raise about $500 million in new equity investment, including the $250 million that US Airways already has arranged from two regional airlines to help it to come out of Chapter 11 bankruptcy protection this summer. A merger agreement would need to provide a bankruptcy-court exit plan for US Airways, the analysts said.
America West, which made money last year and is in better financial shape than US Airways, would most likely be the acquiring company, but the new entity would probably use the better-known US Airways name, analysts said.
Any agreement would require approval of the companies' boards and controlling shareholders; U.S. Bankruptcy Court Judge Stephen Mitchell, who's overseeing US Airways' case; the federal Air Transportation Stabilization Board, which guaranteed post-Sept. 11, 2001, loans to both airlines; labor unions that represent the vast majority of employees at both airlines; and General Electric Co.'s aircraft financing unit, which owns jets leased to the carriers.
Both airlines fly Airbus and Boeing jets and would probably use the merger to reduce the number of older planes they fly.
Another potential obstacle to a deal, noted last month by Robert Ashcroft, an analyst with UBS Securities in New York, in a report to investors, is how Southwest would respond - especially since it has vowed to grow at Philadelphia airport if it can get more gates. Two-thirds of the airport's gates are now controlled by US Airways, mostly under leases that expire June 30, 2006.
Ashcroft said Southwest not only would be a fierce competitor on fares and service, but he also quoted others' speculaton that the discount giant might try to spoil an America West-US Airways party by bidding on US Airways assets. When AirTran Airways tried to acquire gates at Chicago Midway Airport last year from ATA Airlines, Southwest stepped in and outbid it.
"We think [Southwest] wants Philadelphia every bit as much as it wanted Midway," Ashcroft said.
Among the other challenges of merging two unionized airlines is how to integrate the workforces. Pilots and flight attendants traditionally have been able to choose their work schedules based on seniority. US Airways pilots have an average of 17 years seniority while America West has been in business only since 1983, which means it has a younger workforce.
The combined company could face morale problems if any large group of employees didn't believe it was treated fairly in the deal.
"Pilots especially are very territorial with their seniority," said Roger King, an analyst with Credit Sights in Greenwich, Conn.
Hanging over the discusions is the condition of the airline industry. All carriers' profitability is in jeopardy this year because of high oil prices, while revenue is weak because fares are at levels not seen since the early 1980s.
Most experts say that for the industry to make money again, one or more big airlines will need to go out of business or merge with others, as a way to reduce capacity, or the number of airline seats available for sale each day.
Mitchell said that he thinks consolidation is a "rational approach to the industry's problems." But when he looks at combining America West and US Airways, "Uunless there are some very signficant cost savings, I can't see it as being a real plus," because it won't reduce industry capacity enough.
Most Wall Street analysts are pessimistic about US Airways' survival beyond this year without joining forces with another carrier. The most optimistic thing that King could find to say about combining the airline with America West was that it could be a "way of liquidating US Airways in an orderly fashion."
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