A possible merger of US Airways and America West Airlines to create the nation's sixth largest carrier sparked expectations that industry restructuring will proceed.
A proposed combination of America West and US Airways would rival Continental's national market share of 9% in size and scope, although the combined entity would need $500 million in new cash, and would have to win consent from the bankruptcy court overseeing the second US Airways reorganisation since 2002.
Moreover, any deal would also have to win agreement from two organisations that have supported both carriers: the federal Air Transportation Stabilisation Board and General Electric's financing units.
The two carriers would bring similar Airbus-dominated narrowbodied fleets as well as geographical reach with little overlap. However, substantial deficits would also feature as US Airways lost $611 million last year, while America West recorded a deficit of $89 million. America West did make a $33.6 million profit for the first quarter and has $350 million in cash By contrast US Airways lost $191 million and had about $510 million in cash.
However, America West chairman Doug Parker says: "Anything that America West is involved in would not involve using America West cash on hand for any kind of transaction." Among possible investors are the Texas Pacific Group, which holds a stake in America West and had considered financing US Airways' exit from bankruptcy. Also in the wings are GE and even airframer Airbus, which has previously advanced generous terms to both carriers.
But labour issues could be difficult. As both airlines confirmed that merger talks had progressed, the America West pilot union ousted its chairman and installed a more militant chief, who vowed to protect the jobs of its generally less senior members, who would be vulnerable in a merger. And US Airways unions will protect the $7 billion in concessions they have given up.
Merger savings could be accomplished by trimming jobs and aircraft, according to UBS analyst Robert Ashcroft, who says a merged company could shed 60 aircraft, leaving it with a fleet of about 350. Ashcroft says Southwest, a fierce competitor on fares and service, might also try to spoil a deal by bidding on US Airways assets.
A combination of the two low-fare hub-and-spoke carriers, however difficult, could bring America West into the Star Alliance along with US Airways. Others say a codeshare between the two might work better than a merger.
Consultant Mike Roach, a founder of America West, says a merger "would not have that much impact on the industry. It's a strange combination really since the US Airways name is tarnished and the America West brand is unclear to most people."
But Parker says: "Regulators are tired of hearing airlines say they need more help. One way for airlines to help themselves is to be able to consolidate."
DAVID FIELD WASHINGTON
Source: Airline Business
