JonnyKnoxville
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United, US Airways fly closer tomerger; Combined carrier is expected to be based in Chicago, but topleaders would come from smaller airline
Chicago Tribune
May 11, 2008
United Airlines is closing in on a merger with US Airways,sources say, after being spurned by Continental Airlines and Delta AirLines.
The combined carrier would be headquartered in Chicago,United's base and home to its largest airport hub, said a personfamiliar with the negotiations.
But United executives aren't expected to run the carrier,which would be the nation's second largest, slightly smaller than theproposed Delta-Northwest Airlines tie-up announced last month. Topduties are likely to be assumed by US Airways Chief Executive DougParker and its president, Scott Kirby, said people close to thePhoenix-based carrier.
Others caution that the management team's makeup and ahost of other issues have yet to be sorted out and that an announcementisn't imminent.
The carriers have been down this path before. United andUS Airways explored a merger in 1995 and went so far as announcing adeal in 2000, only to shelve it 14 months later amid a slowing economyand opposition from labor and regulatory officials.
As in 2000, United and US Airways are expected to shedassets in the Washington, D.C., market, where overlapping operationsare likeliest to raise antitrust concerns. United is the dominantcarrier at Washington Dulles International Airport; US Airways is thelargest at capacity-constrained Reagan National Airport.
AirTran, JetBlue and Virgin America officials all say theywould be in the market for landing rights and gates that the carrierswould divest at Reagan National and other East Coast strongholds if amerger were consummated.
"There are some places we're keeping a very close eye on,"said David Cush, president and CEO of San Francisco-based VirginAmerica, an upstart airline aimed at business travelers that plans torapidly expand its cross-country routes. "If a deal is proposed, we'llget our wish list together."
United and other carriers are contemplatingindustry-changing consolidation amid a credit crisis, lower consumerspending and record-high fuel prices. In addition to theDelta-Northwest merger, American Airlines is negotiating an alliancewith Continental that would enable the carriers to sell tickets on eachother's flights.
All airlines are struggling to cope with the sharpindustry downturn. But the pressure is especially keen for United CEOGlenn Tilton, whose airline's performance badly trailed its peersduring the first quarter and who hasn't been able to deliver a deal toshareholders, despite being the industry's most vocal proponent ofconsolidation.
What's more, United is projected to suffer the deepest2008 losses in the industry, an estimated $10.71 per share, at thecurrent oil prices, according to a research report published Friday byanalyst Kevin Crissey of UBS Investment Research.
The airline with the second-largest projected loss? USAirways, which Crissey estimates will lose $10.16 per share. Parkeralso has advocated consolidation and last year failed in an attemptedhostile buyout of Delta.
Combining with US Airways would provide United with a $5.3billion cash cushion, potential cost-saving synergies of at least $1.5billion and the means for even more drastic cuts if needed, likeparking the two carriers' 111-plane fleet of aging Boeing 737-300 jets,sources said.
Sources expect any merger to include capital fromstrategic investors, which could include global alliance partners or aMiddle East-based sovereign fund. While United planned to borrow tofund its $12 billion buyout of US Airways in 2000, this time executiveswant a deal that would strengthen its balance sheet.
But some question whether those gains would offset a fuelbill that would rise as much as $6 billion in 2008 for the combinedcarriers, or demands by unions at United and US Airways to raise theirwages, the lowest among major airlines, up to the industry average.
Jake Brace, United Airlines' executive vice president andchief financial officer, said mergers will work only if they areaccompanied by a major revamping of airline operations.
"Consolidation by itself is not the solution. The industrywill need to do many things to create business plans that work in thisenvironment," said Brace, who declined to comment on any talk of amerger. US Airways also would not comment.
Even so, many longtime aviation observers are skepticalthat the megacarriers formed by combining Delta with Northwest andUnited with US Airways would be stronger and more efficient than thecarriers operating as stand-alone companies.
"There are [few] easy answers for an airline in United'ssituation, but a merger just isn't one of them," said Hubert Horan, aPhoenix-based aviation consultant.
Horan thinks that a United-US Airways linkup may find itmore difficult to navigate the industry's troublesome landscape. Hethinks the costs of combining computers, reservation systems and fleetscould wipe out much of the potential cost savings. There's also thepossibility of potential disruptions that could be triggered by tryingto integrate United's pilots with their balkanized counterparts at USAirways.
"The last thing you need, especially heading into arecession and with fuel volatility, is to spend $1 billion of cashreserves that are already dwindling … on what would be the mosthellaciously complex merger in aviation history," Horan said. "It'slike dropping a gasoline-soaked bomb on six union groups."
http://www.chicagotribune.com/business/chi-sun-united-tilton-mergermay11,0,1669926.story
Chicago Tribune
May 11, 2008
United Airlines is closing in on a merger with US Airways,sources say, after being spurned by Continental Airlines and Delta AirLines.
The combined carrier would be headquartered in Chicago,United's base and home to its largest airport hub, said a personfamiliar with the negotiations.
But United executives aren't expected to run the carrier,which would be the nation's second largest, slightly smaller than theproposed Delta-Northwest Airlines tie-up announced last month. Topduties are likely to be assumed by US Airways Chief Executive DougParker and its president, Scott Kirby, said people close to thePhoenix-based carrier.
Others caution that the management team's makeup and ahost of other issues have yet to be sorted out and that an announcementisn't imminent.
The carriers have been down this path before. United andUS Airways explored a merger in 1995 and went so far as announcing adeal in 2000, only to shelve it 14 months later amid a slowing economyand opposition from labor and regulatory officials.
As in 2000, United and US Airways are expected to shedassets in the Washington, D.C., market, where overlapping operationsare likeliest to raise antitrust concerns. United is the dominantcarrier at Washington Dulles International Airport; US Airways is thelargest at capacity-constrained Reagan National Airport.
AirTran, JetBlue and Virgin America officials all say theywould be in the market for landing rights and gates that the carrierswould divest at Reagan National and other East Coast strongholds if amerger were consummated.
"There are some places we're keeping a very close eye on,"said David Cush, president and CEO of San Francisco-based VirginAmerica, an upstart airline aimed at business travelers that plans torapidly expand its cross-country routes. "If a deal is proposed, we'llget our wish list together."
United and other carriers are contemplatingindustry-changing consolidation amid a credit crisis, lower consumerspending and record-high fuel prices. In addition to theDelta-Northwest merger, American Airlines is negotiating an alliancewith Continental that would enable the carriers to sell tickets on eachother's flights.
All airlines are struggling to cope with the sharpindustry downturn. But the pressure is especially keen for United CEOGlenn Tilton, whose airline's performance badly trailed its peersduring the first quarter and who hasn't been able to deliver a deal toshareholders, despite being the industry's most vocal proponent ofconsolidation.
What's more, United is projected to suffer the deepest2008 losses in the industry, an estimated $10.71 per share, at thecurrent oil prices, according to a research report published Friday byanalyst Kevin Crissey of UBS Investment Research.
The airline with the second-largest projected loss? USAirways, which Crissey estimates will lose $10.16 per share. Parkeralso has advocated consolidation and last year failed in an attemptedhostile buyout of Delta.
Combining with US Airways would provide United with a $5.3billion cash cushion, potential cost-saving synergies of at least $1.5billion and the means for even more drastic cuts if needed, likeparking the two carriers' 111-plane fleet of aging Boeing 737-300 jets,sources said.
Sources expect any merger to include capital fromstrategic investors, which could include global alliance partners or aMiddle East-based sovereign fund. While United planned to borrow tofund its $12 billion buyout of US Airways in 2000, this time executiveswant a deal that would strengthen its balance sheet.
But some question whether those gains would offset a fuelbill that would rise as much as $6 billion in 2008 for the combinedcarriers, or demands by unions at United and US Airways to raise theirwages, the lowest among major airlines, up to the industry average.
Jake Brace, United Airlines' executive vice president andchief financial officer, said mergers will work only if they areaccompanied by a major revamping of airline operations.
"Consolidation by itself is not the solution. The industrywill need to do many things to create business plans that work in thisenvironment," said Brace, who declined to comment on any talk of amerger. US Airways also would not comment.
Even so, many longtime aviation observers are skepticalthat the megacarriers formed by combining Delta with Northwest andUnited with US Airways would be stronger and more efficient than thecarriers operating as stand-alone companies.
"There are [few] easy answers for an airline in United'ssituation, but a merger just isn't one of them," said Hubert Horan, aPhoenix-based aviation consultant.
Horan thinks that a United-US Airways linkup may find itmore difficult to navigate the industry's troublesome landscape. Hethinks the costs of combining computers, reservation systems and fleetscould wipe out much of the potential cost savings. There's also thepossibility of potential disruptions that could be triggered by tryingto integrate United's pilots with their balkanized counterparts at USAirways.
"The last thing you need, especially heading into arecession and with fuel volatility, is to spend $1 billion of cashreserves that are already dwindling … on what would be the mosthellaciously complex merger in aviation history," Horan said. "It'slike dropping a gasoline-soaked bomb on six union groups."
http://www.chicagotribune.com/business/chi-sun-united-tilton-mergermay11,0,1669926.story
now that was funny I am still cracking up.
