DAVID FIELD WASHINGTON
Much like the nation's economy, the pace of US airline consolidation has stilled as the proposed take-over of US Airways by United Airlines drags to a halt. Unlike the economy, it may take more than waiting to get things moving again.
That assessment marks the consensus of opinion after United prepared to walk away from its plan to take-over US Airways. Its deliberations come in the face of continuing antitrust objections, growing public suspicion that the $4.3 billion deal would make an already bad airline service worse and a weakening economy that had claimed business travel as one of its first victims.
The big question is what United will do to resume momentum. With the US Airways merger it had moved ahead of American Airlines, but American is now back as the undisputed number one with its purchase and integration of TWA.
Almost as big a question is what US Airways will do. Although the airline has ruled out a much-expected break-up and sale of its parts, it does not discount a sale of the entire airline. President and chief executive Rakesh Gangwal declines to outline the alternatives, but insists that "the status quo can't remain". One move sees it seeking agreement from its pilots to fly more than the 70 regional jets now allowed under their contract.
US Airways is trapped in a "conundrum" created by 18 months of uncertainty since it began planning to merge into United, Gangwal says, explaining the carrier's $24 million loss in the normally strong second quarter.
The United merger negotiations started early last year and were formalised in May 2000. Over that period, Gangwal says: "We couldn't make any material changes to our business." Meanwhile, "our competitors didn't stop moving," adding more low-fare and, regional jet flights in US Airways' home territory of the East Coast.
The US Airways loss compares to last year's second-quarter profit of $80 million, and bring's half year losses to $202 million against $35 million in 2000.
Gangwal calls the decline in business traffic "dramatic", while United president Rono Dutta says it is among the steepest drop-offs he has seen.
Dutta predicts that it "is a matter of time before consolidation resumes". However, if the present deal is called off, Northwest Airlines president Doug Steenland warns: "There would likely be some hiatus in overall merger transactions, short of those generated by financial difficulties."
Source: Airline Business
