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"The United Airlines-US Airways Deal Is Dead."

Tue Apr 03, 2001 6:51 am

Source: user 'airlinewatch' at


Found this post on another chat board;
This will be printed in Forbes, April 16, 2001.

by Howard Banks

"Canceled Flight

Airlines - The United Airlines-US Airways deal is dead. The winner? Don Carty's American.

Experienced passengers know that when a flight is constantly delayed it will eventually wind up being canceled. That's exactly what's happening to United Airlines' acquisition of US Airways. The $4.3 billion deal is grounded, thanks to stalling tactics by the Department of Justice, which has raised tough new questions about the deal in the hopes that it will go away.

Justice is saying nothing. But privately, officials say that the merged carrier would be so dominant across the U.S. that no airline would be able to compete against it. Which is why Delta and Continental are talking about a merger purely as a defensive move.

Justice's concerns about the might of a combined United-US Airways in the mid-Atlantic market boiled over in December, just in front of a year-end deadline, by which point Justice was due to approve the deal or not. The original merger included a proposal that US Airways would sell off most of its Washington, D.C. aircraft and slots to something called DC Air, a newly created carrier run by a local businessman with no airline experience. As a credible competitor, DC Air "failed the laugh test," according to Michael Levine, an adjunct professor at Harvard and a godfather of airline deregulation.

This statement embarrassed Justice into agreeing that DC Air would not suffice. United and US Airways had a choice: See the merger founder or come up with another solution to reduce their huge Washington dominance.

Out of the blue, in January United invited rival American into the deal. The proposal: American would take 49% of DC Air, to make it acceptable. To make it worthwhile for American, United also conceded a 50-50 share of the lucrative northeast Shuttle to be acquired from US Airways.

Filed with the Securities & Exchange Commission was a highly unusual and collusive qualification to the arrangement with American: United insisted that if American were ever to grow its national market share to 7.5 percentage points more than United's, through, say, a big acquisition, then American would hand its half of the Shuttle back for free.

Just last month Justice finally woke up to the fact that this provision was a bit smelly. Three weeks before the Apr. 2 deadline, Justice said they'd have to turn down the merger if this provision were included.

Ugly questions now face James E. Goodwin, United's chief executive. The $60-per-share price for US Airways now looks ludicrous; it is now trading at $35. And the deal keeps shrinking. Industry sources say that Justice favors forcing the Shuttle to go to another carrier altogether, not United. Even United insiders now wonder when its board will pull the plug on the US Airways deal.

Meanwhile, American Airlines' boss Donald J. Carty has picked up bankrupt TWA under cover of the United-US Airways maneuvering. The over $3 billion cost brings valuable goodies. Adding TWA's terminal at New York's Kennedy Airport effectively shuts anybody else out of expanding there. American gains TWA's gates and slots at crowded La Guardia and Washington's Reagan National. TWA's St. Louis hub will take pressure off American's overcrowded hubs at Chicago's O'Hare and Dallas Fort Worth. And in the desperately Freudian airline business, Carty's biggest prize? With TWA's 4% national market share added to American's 18%, his airline is now larger than United's 20% market share.

The toughest question for United's Goodwin: Will Carty just take TWA and walk from the United deal?"


RE: "The United Airlines-US Airways Deal Is Dead."

Tue Apr 03, 2001 7:02 am

Good article, I think the author is spot-on.

Curious though what will become of Terminal 5 at JFK now to "effectively [shut] anybody else out of expanding there"

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RE: "The United Airlines-US Airways Deal Is Dead."

Tue Apr 03, 2001 9:00 am

Good article, but I think that Wolf will do all he can to convince Goodwin to conceed things to the DOJ in order to get the deal approved, he has just put too much into the strategy of being taken over by UA that US is now pretty much relying on it to survive in the long term. We'll have to see though.
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RE: "The United Airlines-US Airways Deal Is Dead."

Tue Apr 03, 2001 5:36 pm

Very good article!!! I think that if the deal is not approved by May15 or 16 when UA has their annual board meeting, this deal will be cancelled. I think a lot of shareholders will demand this and maybe Mr Goodwin will have to go. AA may look like a winner but they will also have a big challange integrating TWA into AA. We will see what happens. The777Man
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RE: "The United Airlines-US Airways Deal Is Dead."

Tue Apr 03, 2001 7:56 pm

if the UA and US deal will finally be rejected, what does this mean for the AA/UA deal concerning the US and TW fleets and the jointly operated shuttle they were to take-over from US?????

If only pure sweetness was offered, why's this bitter taste left in my mouth.
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RE: "The United Airlines-US Airways Deal Is Dead."

Tue Apr 03, 2001 8:58 pm

Please send all of your thoughts and prayers to the employees of US Airways who will now suffer the burden of watching their airline downsize and eventually dissappear. Eastern....PanAm...Braniff...US Airways

Now where did I put my resume-writing pen?
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RE: "The United Airlines-US Airways Deal Is Dead."

Wed Apr 04, 2001 12:37 am

My thoughts are indeed with all the US employees, as Airwaysdc9 mentioned. I am convinced that Wolf will take a hatchet to US and chop it into a dozen pieces.

I am opposed to the merger on competiveness grounds, but I am opposed to Wolf remaining in charge on grounds of good taste. He should go.
Flying Colors Forever!
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RE: "The United Airlines-US Airways Deal Is Dead."

Wed Apr 04, 2001 12:46 am

The Goodwin guy as well as all of those other new UA people should go too. They're steadily ruining UA and don't seem to have a clue as to what they're doing.

I think UA is secretly ran by a bunch of teenagers who keep making dumb decisions.

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RE: "The United Airlines-US Airways Deal Is Dead."

Wed Apr 04, 2001 1:15 am

I think USAirways ought to fire Wolf et al, import some new blood from Continental, restructure itself to become more cost effective, and make a go of it. I don't know why, but I like USAirways (I'm flying ALB-DCA-CAE tomorrow). I guess I like rooting for the underdog. Besides, I would hate to see the last remnants of the old Piedmont Airlines disappear.
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Wed Apr 04, 2001 2:40 am

It would be better to see this article actually run in Forbes before accepting it as legit and accurate. But the article's conclusions accord well with the data, It would not be surprising if UA-US actually was being stalled to death by Justice.

The Northeast--especially Upstate New York--can breathe easier for awhile, if the merger really is dead. United had made quite clear in meetings with local officials in PA and CT that they weren't going to maintain service levels in medium and small size markets (per Michael Boyd). But US Airways costs are still untenably high. The still-healthy carrier needs to use the remaining years of life to reduce costs further--and stay alive while finding a less anticompetitive merger partner.

If the merger is dead, US Airways must keep forging ahead with its two readily controllable cost reduction factors. First, fleet rationalization is well underway with over a quarter of the Airbus fleet in place (and growing). US needs to keep it up. Second, the airline needs to grow its transcon and transatlantic operations. Just as Steve Wolf promised after the 1997 concessionary employee contracts. There is no reason that an airline with three 20-million pax/year hubs in the East can't be filling A330s to the West Coast. Especially when two of those hubs--PIT and CLT--are far less congestion-prone than ORD or DFW.

As Chris Beebe, the head of US's pilot union unit, noted last week, US Airways own internal studies show that the $9 billion company is projected to grow to $12 billion by 2004. Southwest or no Southwest, US Airways is alive and kicking and can be so for awhile.

If the airline must merge to be preserve whole, it will have to be with someone smaller than United. The public and DOJ are on to the Big Air/ Oligopoly Big 6's contempt for them and their communities; Big Three ain't an option right now. If US were to merge with, say Northwest, which would make Northwest 18 percent of USA traffic, and not trigger superconsolidation, DOJ would probably sign off.

Need a new airline paint scheme? Better call Saul! (Bass that is)
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RE: "The United Airlines-US Airways Deal Is Dead."

Wed Apr 04, 2001 3:21 am


and I think the answer to the question would be "heck yea!"

wonderfully written article, full of facts and to the point... the whole DCAir thing was just a load of fresh manure  Smile I think US Airways deserves better than United, I think US Airways is a wonderful airline on their own, I certainly hope they'll be able to stay strong and continue as an airline of it's own right.

Head in the clouds... yet feet planted firmly on the ground.
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RE: "The United Airlines-US Airways Deal Is Dead."

Wed Apr 04, 2001 3:36 am

I would prefer a merger for NW with say AS so that NW actually had a big presence in the NW.

I think US can make it if they start making better financial decisions and focus delivering what the customers want. In my opinion the last thing they need is UA to take them over.

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