Ramon Lopez/WASHINGTON DC
American Airlines has acquired Reno Air in a deal worth $124 million. The acquisition is expected to be completed in the first quarter of 1999, after which the airlines will begin integrating the route networks and work forces.
American, the second-largest airline in the USA, plans to re-establish its footing on the West Coast through the acquisition of the low-fare airline based in Reno, Nevada. American closed its San Jose hub and since 1993 has had a marketing pact with Reno Air, which uses former American gates at San Jose International airport in California. The deal will see Reno completely absorbed into its new parent and adopting its brand.
Reno Air operates 28 Boeing MD-80s and MD-90s which fit well with American's fleet, which includes 260 MD-80s. It operates 186 daily departures to 16 cities, but there is virtually no overlap with American. The Clinton Administration is not expected to raise any anti-trust issues. Joseph O'Gorman, Reno Air's chairman, says the deal "-provides stability to our employees".
His counterpart at American, Don Carty, believes the new acquisition creates "a more comprehensive travel network".
Six-year-old Reno Air has struggled financially, but has improved its operation in recent times, making it more attractive to potential buyers. Rumours of a deal with American began circulating in September.
Reno Air ended 1997 with a net loss of $12 million compared to a profit of $20 million in 1996. It lost $9 million in the 1998 first quarter before reporting a $1 million second quarter profit. Reno Air's specialty has been to move into under-served, overpriced markets.
American's management will have to merge workers represented by different labour groups: American's flight attendants are members of the Association of Professional Flight Attendants while Reno Air's cabin crews belong to the Teamsters union.
Reno's 300 pilots, who belong to the Air Line Pilots Association (ALPA), and American's 9,000 pilots, represented by the militant Allied Pilots Association (APA), are taking a wait-and-see attitude regarding the integration. ALPA is "cautiously optimistic" about the deal and says "the outlook appears favourable."
The APA says the announcement came as no surprise, adding that there have been no substantive discussions between the two pilot unions and American as to how the deal is to be crafted. "A transaction of this magnitude clearly raises a host of complex issues and will likely take several months before it is completed," it concluded.
Source: Flight International
