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AP
US Airways, America West Agree to Merge
Thursday May 19, 11:40 pm ET
By Jacques Billeaud and Matthew Barakat, AP Business Writers US Airways, America West Agree to Merge to Better Compete With Lower-Cost Competitors
TEMPE, Ariz. (AP) -- US Airways Group Inc. and America West Holdings Corp., the nation's seventh and eighth largest carriers, are merging to create an airline designed to better compete with lower-cost competitors.
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The combined company will fly as US Airways and would become the nation's sixth largest airline in terms of passenger miles, an industry measurement. It will be funded by $1.5 billion in new capital from a variety of investors, including aircraft maker Airbus.
The goal of the merger is to stitch together two geographically distinct carriers with a history of financial struggles into a stronger airline that would compete better with lower-cost rivals such as Southwest Airlines Inc. and JetBlue Airways Corp. US Airways has a strong presence on the East Coast, and in the Caribbean, while America West operates across the West from hubs in Phoenix and Las Vegas.
The airlines plan to merge their frequent flier programs, with current members retaining their full mileage balances.
Doug Parker, chief executive and president of America West Holdings, called the combined company "the first nationwide, full-service, low-cost airline."
"These two airlines are so much stronger together," said Parker, who will become CEO of the new company.
Financing for the deal includes a $250 million loan from European jet maker Airbus. In return, the merged company will serve as a "launch customer" for Airbus' new A350 jet, with deliveries scheduled from 2011 to 2013. The companies did not disclose the number of new jets to be ordered.
The new company will be based in Tempe, home of America West.
US Airways President and CEO Bruce Lakefield said the merger will ensure US Airways' long-term viability and the security of its employees.
Parker said he was not sure how many jobs would be cut if the merger goes through. US Airways employs about 30,000, including 600 at its headquarters in Arlington, Va. America West employs about 14,000.
"I don't anticipate any major furloughs over and above" those that have already been occurring Parker said.
Jack Stephan, spokesman for the US Airways unit of the Air Line Pilots Association, said the union is "looking forward to being a part of the creation of the nation's premier low-cost airline."
JR Baker, head of America West's ALPA unit, said America West pilots will keep an open mind while examining the proposed combination, but are prepared to defend their interests.
"We want to make sure we keep our job security and the rights we would have if there had not been a merger," Baker said.
US Airways once had some of the highest-paid employees in the industry, but several rounds of pay cuts reduced salaries to those found at America West, which has pay scales at the lower end of the industry average.
Under the merger deal, the companies would return a combined 59 jets to their lessor, reducing the airlines combined fleet size by about 15 percent, Parker said. The new airline would have a fleet of 361 aircraft, down from the 419 total planes both companies now fly.
Parker said he hopes to obtain regulatory and shareholder approval for the deal this fall, and that customers would see a rapid integration a few months after that. A complete integration of the two airlines, including a combined maintenance and certification schedule, would likely take two to three years, Parker said.
The merger with America West is designed to provide the final investment necessary to allow US Airways to emerge from bankruptcy. The deal must be approved by the U.S. Bankruptcy Court in Alexandria, Va., where the merger proposal will be subject to competing bids.
Parker said in a conference call with reporters that he does not expect any bidding war to emerge in bankruptcy court.
The financing includes an equity investment of $350 million from four groups, including $125 million from the parent of regional carrier Air Wisconsin and $75 million from the parent of Air Canada.
PAR Investment Partners, L.P, a Boston-based investment firm, and Peninsula Investment Partners, L.P., a Virginia-based investment firm, will invest $100 million and $50 million, respectively.
In all, Parker said the financing includes a $1.5 billion infusion of new capital, that "will provide an unprecedented level of cash for an airline this size."
The ability to attract such a deep well of financing is an endorsement of the company's business model, said Parker, which should generate a profit even if oil remains above $50 a barrel.
Under terms of the deal, America West shareholders will get a 45 percent stake in the company, the new investors will have a combined 41 percent and US Airways will have 14 percent.
The two companies owe a combined $1 billion to the federal Air Transportation Stabilization Board, which provided government backed loans to airlines in the aftermath of the industry crisis precipitated by the 2001 terror attacks.
Parker said negotiations with the ATSB are ongoing, but that "the government risk is dramatically reduced because the new airline is so much stronger."
US Airways, which last year made its second trip into bankruptcy in two years, slashed worker pay by $1 billion a year and shed $3 billion in pension obligations.
The company's first exit from bankruptcy was sped along thanks to a $900 million government loan from the ATSB and a $240 million investment from the Retirement Systems of Alabama, a state pension fund. Alabama has written off its investment and is pondering whether to invest additional money, said David Bronner, US Airways' chairman and CEO of the pension fund.
"There's still some loose ends, so we haven't committed any new money, although we could. But we haven't, and principally the reason being that they've structured the deal so that the investors really don't have a whole lot to say about things," Bronner said.
The airline said its goal was to reinvent itself as a low-cost carrier like JetBlue or America West. But even after the cost reductions, the airline struggled as fuel costs soared and low-fare competitors drove ticket prices down.
America West, which was founded in 1983, operates flights nationwide and to Mexico.
When Parker took over as chief executive in 2001, America West was dogged by a reputation as a carrier that delayed flights, lost luggage and left customers waiting.
The company was pushed to the brink of bankruptcy shortly after the terrorist attacks and secured a $429 million loan guarantee from the federal government.
Its service record has since improved. In July 2003, the company reported its first of several quarters of profits after more than two years of losses. Its earnings have since have been mixed, due largely to high fuel costs and too many cheap fares in the market.
Matthew Barakat contributed to this report from McLean, Va.
US Airways, America West Agree to Merge
Thursday May 19, 11:40 pm ET
By Jacques Billeaud and Matthew Barakat, AP Business Writers US Airways, America West Agree to Merge to Better Compete With Lower-Cost Competitors
TEMPE, Ariz. (AP) -- US Airways Group Inc. and America West Holdings Corp., the nation's seventh and eighth largest carriers, are merging to create an airline designed to better compete with lower-cost competitors.
[size=-2]ADVERTISEMENT[/size]
The goal of the merger is to stitch together two geographically distinct carriers with a history of financial struggles into a stronger airline that would compete better with lower-cost rivals such as Southwest Airlines Inc. and JetBlue Airways Corp. US Airways has a strong presence on the East Coast, and in the Caribbean, while America West operates across the West from hubs in Phoenix and Las Vegas.
The airlines plan to merge their frequent flier programs, with current members retaining their full mileage balances.
Doug Parker, chief executive and president of America West Holdings, called the combined company "the first nationwide, full-service, low-cost airline."
"These two airlines are so much stronger together," said Parker, who will become CEO of the new company.
Financing for the deal includes a $250 million loan from European jet maker Airbus. In return, the merged company will serve as a "launch customer" for Airbus' new A350 jet, with deliveries scheduled from 2011 to 2013. The companies did not disclose the number of new jets to be ordered.
The new company will be based in Tempe, home of America West.
US Airways President and CEO Bruce Lakefield said the merger will ensure US Airways' long-term viability and the security of its employees.
Parker said he was not sure how many jobs would be cut if the merger goes through. US Airways employs about 30,000, including 600 at its headquarters in Arlington, Va. America West employs about 14,000.
"I don't anticipate any major furloughs over and above" those that have already been occurring Parker said.
Jack Stephan, spokesman for the US Airways unit of the Air Line Pilots Association, said the union is "looking forward to being a part of the creation of the nation's premier low-cost airline."
JR Baker, head of America West's ALPA unit, said America West pilots will keep an open mind while examining the proposed combination, but are prepared to defend their interests.
"We want to make sure we keep our job security and the rights we would have if there had not been a merger," Baker said.
US Airways once had some of the highest-paid employees in the industry, but several rounds of pay cuts reduced salaries to those found at America West, which has pay scales at the lower end of the industry average.
Under the merger deal, the companies would return a combined 59 jets to their lessor, reducing the airlines combined fleet size by about 15 percent, Parker said. The new airline would have a fleet of 361 aircraft, down from the 419 total planes both companies now fly.
Parker said he hopes to obtain regulatory and shareholder approval for the deal this fall, and that customers would see a rapid integration a few months after that. A complete integration of the two airlines, including a combined maintenance and certification schedule, would likely take two to three years, Parker said.
The merger with America West is designed to provide the final investment necessary to allow US Airways to emerge from bankruptcy. The deal must be approved by the U.S. Bankruptcy Court in Alexandria, Va., where the merger proposal will be subject to competing bids.
Parker said in a conference call with reporters that he does not expect any bidding war to emerge in bankruptcy court.
The financing includes an equity investment of $350 million from four groups, including $125 million from the parent of regional carrier Air Wisconsin and $75 million from the parent of Air Canada.
PAR Investment Partners, L.P, a Boston-based investment firm, and Peninsula Investment Partners, L.P., a Virginia-based investment firm, will invest $100 million and $50 million, respectively.
In all, Parker said the financing includes a $1.5 billion infusion of new capital, that "will provide an unprecedented level of cash for an airline this size."
The ability to attract such a deep well of financing is an endorsement of the company's business model, said Parker, which should generate a profit even if oil remains above $50 a barrel.
Under terms of the deal, America West shareholders will get a 45 percent stake in the company, the new investors will have a combined 41 percent and US Airways will have 14 percent.
The two companies owe a combined $1 billion to the federal Air Transportation Stabilization Board, which provided government backed loans to airlines in the aftermath of the industry crisis precipitated by the 2001 terror attacks.
Parker said negotiations with the ATSB are ongoing, but that "the government risk is dramatically reduced because the new airline is so much stronger."
US Airways, which last year made its second trip into bankruptcy in two years, slashed worker pay by $1 billion a year and shed $3 billion in pension obligations.
The company's first exit from bankruptcy was sped along thanks to a $900 million government loan from the ATSB and a $240 million investment from the Retirement Systems of Alabama, a state pension fund. Alabama has written off its investment and is pondering whether to invest additional money, said David Bronner, US Airways' chairman and CEO of the pension fund.
"There's still some loose ends, so we haven't committed any new money, although we could. But we haven't, and principally the reason being that they've structured the deal so that the investors really don't have a whole lot to say about things," Bronner said.
The airline said its goal was to reinvent itself as a low-cost carrier like JetBlue or America West. But even after the cost reductions, the airline struggled as fuel costs soared and low-fare competitors drove ticket prices down.
America West, which was founded in 1983, operates flights nationwide and to Mexico.
When Parker took over as chief executive in 2001, America West was dogged by a reputation as a carrier that delayed flights, lost luggage and left customers waiting.
The company was pushed to the brink of bankruptcy shortly after the terrorist attacks and secured a $429 million loan guarantee from the federal government.
Its service record has since improved. In July 2003, the company reported its first of several quarters of profits after more than two years of losses. Its earnings have since have been mixed, due largely to high fuel costs and too many cheap fares in the market.
Matthew Barakat contributed to this report from McLean, Va.
