United ends talks with US Airways
By Micheline Maynard and Andrew Ross Sorkin
Friday, May 30, 2008
United Airlines told US Airways on Thursday that it had decided not to continue talks on a possible merger, people with direct knowledge of the situation said.
The chief executive at US Airways, W. Douglas Parker, was told of United's decision during a meeting with its chief executive, Glenn Tilton.
The airlines are expected to announce Friday that the discussions have ended, these people said late Thursday. They spoke on condition of anonymity.
Both airlines plan to cite the difficulty and expense of combining various labor contracts, particularly agreements covering pilots, these people said.
A spokeswoman for United, Jean Medina, declined to comment, as did a spokesman for US Airways.
United's decision not to pursue the merger marks the second time in a month that it has failed to reach a deal with another major airline, only this time it was the company that spurned the idea. The board of Continental Airlines decided on April 27 not to continue discussions with United, saying that a deal was not in the airline's best interest. United has held talks since then with Continental about a marketing agreement, similar to an arrangement that involves Continental, Delta and Northwest.
Tilton and Parker have been the leaders among airline industry executives in calling for consolidation, saying that it is inevitable given the stiff competitive challenges.
Airlines have been hit this year by steep increases in the price of jet fuel, which has risen 82.5 percent in 12 months. Several carriers have announced plans to eliminate routes and retire aircraft to cut costs and to raise fares.
United, which spent three years under bankruptcy protection earlier this decade, lost $537 million in the first quarter, and said it would announce a series of cost-cutting steps. Some analysts thought the moves might be unveiled this week, but Medina said no announcement was planned.
United's board raised concerns about the potential merger during a meeting on May 15. In addition, the airline faced the likelihood that at least two directors, representing the Air Line Pilots Union and the International Association of Machinists and Aerospace Workers, would vote against the merger.
Without unanimous board support, it might have been difficult for the airline to find lenders who were willing to back the deal, people with direct knowledge of the situation said Thursday.
Those unions, as well as the Association of Flight Attendants, might have also lobbied against the agreement in Washington.
The breakdown of the United-US Airways talks means Delta and Northwest are likely to be the only major airlines that merge before the end of the Bush administration. The two carriers announced an agreement on April 14 that is being reviewed by the Justice Department. Delta and Northwest say they hope to receive regulatory approval before the end of 2008.
Earlier this week, bankers, lawyers and other advisers to United, the second-largest traditional airline behind American, and US Airways, the sixth-largest, said the work on the merger had been put on permanent hold while Tilton pondered whether the negotiations should continue.
The delay frustrated some executives at US Airways, who were eager to proceed with discussions so that the agreement might be reviewed before a new president takes office.
Both airlines had agreed that there could be value in the combination, but never finalized details, such as the location of the airline's headquarters, which executive would run it and the compensation that shareholders would receive.
Last week, Standard & Poor's Ratings Services placed both airlines on credit watch with negative implications, meaning that the agency was likely to cut the airlines' debt ratings.
On Thursday, Fitch Ratings also changed its outlook for both airlines to negative from stable, and cut its rating on US Airways, saying it could run short of cash later in the year. US Airways spent two stints in bankruptcy earlier this decade, and its rating is well below that of United, which emerged from reorganization in 2006.
By Micheline Maynard and Andrew Ross Sorkin
Friday, May 30, 2008
United Airlines told US Airways on Thursday that it had decided not to continue talks on a possible merger, people with direct knowledge of the situation said.
The chief executive at US Airways, W. Douglas Parker, was told of United's decision during a meeting with its chief executive, Glenn Tilton.
The airlines are expected to announce Friday that the discussions have ended, these people said late Thursday. They spoke on condition of anonymity.
Both airlines plan to cite the difficulty and expense of combining various labor contracts, particularly agreements covering pilots, these people said.
A spokeswoman for United, Jean Medina, declined to comment, as did a spokesman for US Airways.
United's decision not to pursue the merger marks the second time in a month that it has failed to reach a deal with another major airline, only this time it was the company that spurned the idea. The board of Continental Airlines decided on April 27 not to continue discussions with United, saying that a deal was not in the airline's best interest. United has held talks since then with Continental about a marketing agreement, similar to an arrangement that involves Continental, Delta and Northwest.
Tilton and Parker have been the leaders among airline industry executives in calling for consolidation, saying that it is inevitable given the stiff competitive challenges.
Airlines have been hit this year by steep increases in the price of jet fuel, which has risen 82.5 percent in 12 months. Several carriers have announced plans to eliminate routes and retire aircraft to cut costs and to raise fares.
United, which spent three years under bankruptcy protection earlier this decade, lost $537 million in the first quarter, and said it would announce a series of cost-cutting steps. Some analysts thought the moves might be unveiled this week, but Medina said no announcement was planned.
United's board raised concerns about the potential merger during a meeting on May 15. In addition, the airline faced the likelihood that at least two directors, representing the Air Line Pilots Union and the International Association of Machinists and Aerospace Workers, would vote against the merger.
Without unanimous board support, it might have been difficult for the airline to find lenders who were willing to back the deal, people with direct knowledge of the situation said Thursday.
Those unions, as well as the Association of Flight Attendants, might have also lobbied against the agreement in Washington.
The breakdown of the United-US Airways talks means Delta and Northwest are likely to be the only major airlines that merge before the end of the Bush administration. The two carriers announced an agreement on April 14 that is being reviewed by the Justice Department. Delta and Northwest say they hope to receive regulatory approval before the end of 2008.
Earlier this week, bankers, lawyers and other advisers to United, the second-largest traditional airline behind American, and US Airways, the sixth-largest, said the work on the merger had been put on permanent hold while Tilton pondered whether the negotiations should continue.
The delay frustrated some executives at US Airways, who were eager to proceed with discussions so that the agreement might be reviewed before a new president takes office.
Both airlines had agreed that there could be value in the combination, but never finalized details, such as the location of the airline's headquarters, which executive would run it and the compensation that shareholders would receive.
Last week, Standard & Poor's Ratings Services placed both airlines on credit watch with negative implications, meaning that the agency was likely to cut the airlines' debt ratings.
On Thursday, Fitch Ratings also changed its outlook for both airlines to negative from stable, and cut its rating on US Airways, saying it could run short of cash later in the year. US Airways spent two stints in bankruptcy earlier this decade, and its rating is well below that of United, which emerged from reorganization in 2006.
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