Chris Jasper/WASHINGTON DC
UAL, parent of United Airlines, the world's largest carrier in terms of traffic, is to take over US Airways, creating a giant new airline with an annual turnover in excess of $26 billion - $5 billion more than closest rival AMR Group and its American Airlines subsidiary.
The purchase will cost United $11.6 billion and have a massive impact on the airline industry in the USA and overseas. United's major rivals American and Delta Air Lines could launch bids for US Airways, but given the high price agreed they may have to respond via smaller takeovers of their own.
In international terms, the deal limits recruitment options for airline alliances, with US Airways now in the Star fold. Although the smaller airline will lose its identity under the terms of the takeover, United has guaranteed there will be no job losses among a combined 145,000 workforce.
United's main spur for the deal is its weakness in the eastern USA. The merger means the great east-west strengths of United's Washington DC, Chicago, Denver, San Francisco and Los Angeles hubs will be complemented by a new north-south capability in the eastern seaboard, built on US Airways' Charlotte, Pittsburgh and Philadelphia hubs and its operations in the Washington-New York-Boston commuter corridor.
UAL chairman and chief executive James Goodwin says the deal will make United "the first carrier with a strong presence across the USA". He says the airlines have been in talks since he approached US Airways chairman Stephen Wolf in November. United will pay $4.3 billion in cash and assume debts of $1.5 billion, plus $5.8 billion in aircraft operating leases, valuing US Airways shares at $60 each, a premium of 130% on their pre-deal closing price.
The merger is expected to produce a 35% increase in United's earnings in the second year after completion, which is due in the first quarter of next year, subject to regulatory clearance. United says it expects this clearance to be forthcoming, claiming there is no great overlap between the two in operational terms and that the merger's impact on competition will be minimal. It is a view not shared by many in the industry, who believe it could face major approval problems.
As a sop to the regulators, United has promised there will be no domestic fare increases for two years, other than to cover costs. It plans to cut back operations in Washington, focusing on its Dulles hub. At the city's National Airport, where US Airways is strong, the merged carrier will retain the US Airways Shuttle commuter service and links to US Airways' hubs, but divest other assets to a start-up carrier DC Air. Regulatory attention will focus, however, on around 30 routes where the new airline will have more than 65% of the market - and in 26 cases 100%.
The merged airline will undertake an immediate review of its fleet - which numbers just over 970 aircraft. United's first rationalisation target will be the 40 Fokker 100 jets operated by US Airways. Beyond that it is expected that the A330 order held by US Airways will be retained to operate a number of new planned long-haul routes. Between them, the airlines have 130 Airbus A320s in service, with 154 on order, which could be a problem, as could the fact that the two carriers operate the narrowbody aircraft with different engines - US Airways uses the CFM56 and United the IAE V2500.
United says it plans to operate to all cities now served by US Airways. Although some flights will be cut, it will offer 64 new daily domestic non-stop services and 29 new daily international flights. The latter will connect Pittsburgh and Charlotte with several Asian, Pacific and Latin American destinations, and Philadelphia and Dulles with points in Europe, Canada and the Caribbean.
Internationally, the deal means oneworld carrier British Airways no longer has a clear fallback option should its planned codeshare with American fail to win US Government clearance. That could provoke a last-ditch attempt to woo Delta away from Air France, although the Atlanta-based carrier is enthusiastic about the potential of Paris Charles de Gaulle, and BA has itself signalled that transatlantic moves are no longer its highest priority. Some airline sources suggest the United/US move could alternatively make it easier for BA/American to secure approval.
Domestically, United president Rono Dutta says the future of US Airways' low-cost MetroJet operation, which employs Boeing 737-200s in the east and mid-west, is assured, although it could be merged with United's own low-cost Shuttle service, based in the west and also a 737 operator.
Greater uncertainty surrounds the pair's regional operations under the United Express and US Airways Express banners. United's service consists of five regional airlines and US Airways of 10.
Three of the US carriers - Piedmont, Allegheny and PSA - are wholly owned, and Dutta says the no-redundancies agreement applies to them, but there are "no guarantees" for the other operators. Adding that Atlantic Coast's services for United are effectively safe, he says there are question marks over US Airways' Express operations, and that there may be "rationalisation".
Source: Flight International
