RAMON LOPEZ / WASHINGTON DC
Fruitless talks with regulators and downturn in industry fortunes have resulted in the deal being scrapped
The fate of US Airways could be decided on 18 July when the money-losing carrier's board meets to discuss its options after the apparent collapse of its proposed purchase by United Airlines. The acquisition of the nation's sixth largest carrier for $4.3 billion would have created by far the largest airline in the world and set in train a wave of consolidations in the US industry.
Both airlines have confirmed they are in talks to terminate the deal. Stephen Wolf, chairman of US Airways, told employees that "for some time now senior management has been analysing various options and scenarios" now "merger is no longer an option".
Expressing disappointment, Wolf said the board would conduct "a thorough and exhaustive review of the options available to the company".
He gave no hint as to what the company might do in the wake of the failure, but the planned sale of company assets - originally proposed as part of the merger plan to win approval from anti-trust regulators - could still be on the table. In January, United offered to sell American Airlines' half of US Airways' lucrative shuttle operation plus aircraft for $1.5 billion. American and other US carriers could still be interested in a shuttle deal with US Airways despite worsening local economic conditions.
Defending the merger attempt earlier this year, Wolf said there was no future for mid-size airlines such as US Airways. "US Airways today is neither a low-cost carrier nor a network carrier in an industry that has no place for an 'in-between' airline," he stated. Many thought this stance was motivated partly by a desire to gain regulatory approval.
In essence the deal began to unravel from its start in May 2000, because of opposition from labour, Congress, anti-trust regulators and consumer groups who said that the public interest would be harmed by a merger. Fourteen months of fruitless talks with regulators and the downturn in industry fortunes have resulted in the scrapping of the deal.
The US General Accounting Office concluded that the merger would do more harm than good for the travelling public and would lead to further industry consolidation - a view reinforced by American Airlines' take-over of ailing TWA.
Official cancellation of the deal will yield a small consolation prize for US Airways, which stands to earn a termination fee of $50 million. But Wolf and deputy, Rakesh Gangwal, will not get their expected windfall from completion of the merger and their departure from US Airways. A proxy statement filed with the US Securities and Exchange Commission disclosed that Wolf and Gangwal would have received $12 million and $13 million, respectively, in incentive and termination pay as well as stock options and pension payments already due.
Source: Flight International
