Tuesday, January 9, 2001
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Posted on: Tuesday, January 9, 2001

Airline monopolies feared

Isles may see mixed results of airline megamerger

USA Today

A much smaller, more concentrated airline industry is suddenly a distinct possibility.

Eight months ago, United Airlines announced its intent to buy US Airways in the biggest-ever airline merger. The surprising news brought predictions that it would set in motion other deals resulting in three megacarriers controlling most domestic and international flights. Many said it would never get past antitrust regulators at the Justice Department.

Now American Airlines is reportedly poised to make two shrewd deals: a rescue of money-losing Trans World Airlines, which appears on the brink of bankruptcy reorganization, and a $1.4 billion purchase from United of 20 percent of the assets of US Airways, including a half-share of US Airways Shuttle in the Northeast and 49 percent of Washington-based regional carrier DC Air.

The latter deal would weaken United’s market control of the lucrative Northeast, an effort to win Justice’s blessing for its merger with US Airways.

"This makes two U.S. carriers stronger and solves problems for two others," said Mo Garfinkel, an airline consultant at Arlington, Va.-based PA Consulting Group. "It makes sense from a Justice Department perspective."

Taken together, the deals would power American and United to an even wider lead over competitors — giving each about 25 percent of the market — and leaving Delta Air Lines, now the leader in terms of passengers, at No. 3 and struggling to find a partner or be left behind. United, American and TWA declined comment.

American CEO Don Carty is scheduled to announce the dramatic plans tomorrow. According to people familiar with them, the American-TWA deal calls for TWA to make a liquidation filing in U.S. Bankruptcy Court and for American to step in with upward of $100 million in interim financing, then gradually absorb the ailing carrier.

American would gain TWA’s 20,000 employees, its St. Louis base and maintenance facilities and valuable takeoff and landing rights at congested airports.

In addition, its acquisition of US Airways assets would make American an owner of the Northeast shuttle serving Washington, New York and Boston. American would gain jets, gates and slots connected to the shuttle as well as airport assets in Philadelphia, Atlanta and Newark, N.J., according to people close to the negotiations.

With TWA, American would gain 200 jets, valuable gates and landing rights on the East Coast and elsewhere, and aircraft maintenance operations at a time when mechanics are in short supply. It would also gain a St. Louis hub to take the pressure off Chicago and Dallas/Fort Worth.

The Justice Department emphasized yesterday that no decision has been made on either deal. But now the question seems to be not so much who comes next, but whether the wave can be stopped — and how passengers will be affected.

Both American and TWA declined to comment.

On Capitol Hill yesterday, reaction was swift and not positive.

"What we know about this proposed merger so far illustrates the problems which I and many of my colleagues have raised about the (United) merger," said Rep. James Oberstar, D-Minn., the ranking Democrat on the House transportation committee. "We were concerned that the merger would trigger a round of further, defensive mergers by United’s competitors. Today’s news suggests that the process has begun."

Fliers, he said, could "lose the low fares and other consumer benefits which we have gained" from airline deregulation.

Travel agents aren’t happy, either.

"Prices will go up, specifically for business travel," said Thom Nulty, president of Navigant International.

Wall Street also appeared uneasy. Analysts predicted the American-US Airways deal would help United win Justice’s approval of its US Airways merger. United would end up with a smaller share of the Northeastern market. And the two deals together could make it harder for Delta to find a partner.

"The probability of a (United-US Airways) merger is significantly enhanced," said analyst Sam Buttrick of UBS Warburg. "We have raised our probability of deal completion from 35-to-40 percent to 65-to-70 percent."

But other problems loom, analysts say.

American’s unions may try to negotiate higher wages or other benefits in exchange for supporting the merger, said Michael Linenberg, analyst for Merrill Lynch.

Justice officials warned yesterday against speculation on how it might treat the American or United plans. Both would require Justice approval. "No decision has been made," spokeswoman Gina Talamona said.

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