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ACA/Mesa News Article

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storminpilot

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http://www.washingtonpost.com/wp-dyn/articles/A33804-2003Nov12.html

Atlantic Coast, Mesa Wrestle For Advantage

By Amy Joyce and Keith L. Alexander
Washington Post Staff Writers
Thursday, November 13, 2003; Page E01


Atlantic Coast Airlines Holdings Inc. and Mesa Air Group Inc. yesterday sought to gain the upper hand in their takeover battle as Mesa announced it had cleared a major hurdle in its plan to acquire the Dulles-based airline while Atlantic said it will take a significant step next week in its transformation into a low-fare airline.

Mesa officials said yesterday that they signed a nonbinding agreement with United Airlines to take over the routes Atlantic flies for United, a deal that Mesa chief executive Jonathan G. Ornstein said was critical to the success of his $512 million all-stock offer. Ornstein said earlier this week that failure to strike a deal would prompt him to walk away from Atlantic Coast because the bid would not be financially viable. "If United said we're only willing to pay a very low margin," he said, the deal with Atlantic Coast would become "unattractive."

The United deal is contingent on Mesa succeeding in its takeover of Atlantic, according to a Mesa spokesman.

Atlantic Coast had been unable to reach an agreement with United. After months of negotiations, Atlantic Coast said this summer that it wanted to terminate its agreement with United and operate alone as a low-cost airline. Ornstein wanted a deal with United that he could take to Atlantic Coast shareholders as an alternative to Atlantic Coast's plan to become a low-cost carrier.

"We are not surprised that United and Mesa have signed a memorandum of understanding. We have said all along that United and Mesa are working together to try to squash [Atlantic's] efforts to establish a low-fare, low-cost competitor at Dulles," said Atlantic Coast spokesman Rick DeLisi. "Simply put, United and Mesa want a lock on the Dulles market."

Ornstein said he hoped to wrap up the Atlantic Coast takeover before the end of the year. But even with yesterday's announcement, outsiders were saying that finishing by then is unlikely because of continuing legal maneuvers.

Ornstein said he wanted to complete the United discussions before Phoenix-based Mesa began soliciting the vote of Atlantic Coast shareholders. Late last month, Mesa initiated a proxy fight to convince Atlantic Coast shareholders to vote out the airline's current directors and replace them with a slate of nominees who would approve the takeover. Now that United has made the nonbinding agreement, Ornstein said he feels certain that Mesa can proceed with its takeover bid.

"We're anxious to move forward and give the shareholders an opportunity to decide the future of the company," he said in an interview yesterday.

But Mesa's announcement yesterday did not hinder Atlantic's plans to announce its new identity on Wednesday. The company plans to reveal its new logo on a plane in its hangar at Washington Dulles International Airport. "We look forward to introducing a low-cost alternative to passengers in the Dulles market," said DeLisi, who declined to disclose details of the plan.

"What we've said since our announcement on July 28 is we're continuing to move forward on our new low-fare airline plan, and this is just another chapter in that continuing forward," DeLisi said. The company will "remain under contract with United and will continue to fulfill its contractual obligations until we're released from the contract, then we'll move forward with the new airline," he said.

United -- which in December became the nation's largest carrier to file for bankruptcy -- is trying to wrap up its contracts with its regional partners quickly so it can submit its reorganization plan to the bankruptcy court. United is aiming to emerge from bankruptcy by spring 2004.

Raymond E. Neidl, an airline analyst at Blaylock & Partners, said the haggling between Mesa and Atlantic Coast could extend into next year, especially if Atlantic Coast continues to fight.

"This is not something that is going to happen overnight," Neidl said. "Atlantic Coast really believes the best future for the company is to go the low-cost route." Neidl has argued for a merger with Mesa and said he still thinks it will eventually occur.

Some members of Congress last week asked the Bush administration to investigate Mesa's takeover effort for antitrust violations.

Several lawmakers have written to key Transportation Department officials saying they were concerned that Mesa's bid would prevent another low-cost carrier from operating out of Washington's Dulles International Airport.
 

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