- The Washington Times - Tuesday, July 3, 2001

Officials from United Airlines' parent company and US Airways met yesterday to break off their $12.3 billion deal that would have created the nation's biggest airline.
US Airways told employees in a companywide bulletin yesterday the merger is "no longer an option" and that the board will meet July 18 to review business options. The carrier promised to share decisions with its 46,000 employees as soon as possible.
UAL Corp., United's parent, announced in May 2000 that it would buy the Arlington carrier, a purchase US Airways officials praised as a way to save the airline, but consumer advocates criticized as making the airline too big and too monopolistic.
Since then, the company has had to navigate major obstacles including a lengthy Justice Department investigation, state attorneys general saying they would try to block the purchase, and a slowing economy.
A decision to call off the purchase would have a significant impact on the Washington area.
US Airways uses all three major airports in the area, including a hub at Ronald Reagan Washington National Airport, where it is the biggest airline tenant. It operates another hub at Baltimore-Washington International Airport.
The failure of the merger also would kill DC Air, a proposed Washington-based regional carrier the airlines intended to appease federal regulators. It would have been run by Black Entertainment Television founder Robert Johnson.
The companies declined to comment on the negotiations yesterday, except to issue a statement saying they were meeting.
One item under discussion is the amount United would have to pay US Airways for the deal's failure. Under the companies' contract, the airlines had until Aug. 1 to complete the deal or United would pay US Airways a $50 million breakup fee. The fee would be higher before that date unless US Airways granted a waiver.
Antitrust requirements placed on the deal by the Justice Department appear to have doomed the merger, according to industry analysts.
"I think the regulators were asking for too much," said Helane Becker, an airline-industry analyst for the Wall Street financial firm Buckingham Research Group.
The airlines proposed creating DC Air to head off Justice Department concern that United would be able to control too much East Coast air travel. DC Air would have taken over US Airways airplanes and landing slots at Reagan National and offered service to 44 cities.
"There's nothing we can really say at this point beyond waiting for the next information to come from those two airlines," said DC Air spokesman Michael Lewellen.
However, US Airways Chairman Stephen M. Wolf told Congress several times in recent months that his airline no longer can compete on heavily traveled routes with major carriers like United or on regional routes with smaller discount airlines. Without a purchase to pay off debts, Mr. Wolf has said Chapter 11 bankruptcy protection might be inevitable.
The airline lost $269 million on revenue of $9.27 billion last year. The first quarter of this year showed a worsening trend with a loss of $178 million on $2.24 billion in revenue. US Airways stock, valued at $60 per share in the deal, closed at $20.89 yesterday on the New York Stock Exchange.
US Airways' revenue problems are typical for the industry, as carriers are struggling with the steepest sales declines in two decades because of the slowing economy and cutbacks in lucrative business travel.
If United had acquired US Airways, it would have controlled about one-quarter of the U.S. airline industry. American Airlines' recent acquisition of Trans World Airlines gave it about the same share of the market. Together, the two airlines would have controlled about half of America's commercial passenger air traffic.
If US Airways cannot be resurrected from financial collapse, it would remove a major airline presence from the Washington market. The airline has 103 departures daily from Reagan National, 13 from Washington Dulles International Airport and 73 from BWI. US Airways also operates 78 regional commuter flights out of BWI daily.
"US Airways is important for all airports in the area for competition reasons," said BWI spokeswoman Melanie Miller.
Union officials yesterday held out hope that US Airways employees can avoid losing their jobs.
"It's a manufactured crisis of opportunity rather than an absolute necessity," said Frank Larkin, spokesman for the International Association of Machinists and Aerospace Workers. The Upper Marlboro-based union represents about 16,000 US Airways workers and 44,000 from United.
Mr. Larkin said that with better management, US Airways could find another partner and regain financial solvency. If the airline does find a new partner, Mr. Larkin said, "We'll hold them to the same standard we would hold anyone to, and that is, if it isn't good for the employees, it probably isn't good for anyone."
About 1,069 US Airways pilots are based out of one of the three local airports, according to the Air Line Pilots Association International, a union representing pilots.
Romeo Pereyra, a US Airways maintenance worker, and his wife, Evelyn Pereyra, said yesterday that they were disappointed the merger appears to be failing.
Mr. Pereyra works in Los Angeles during the week but commutes home to his family in San Diego on weekends. He had hoped to work for United Airlines in San Diego and to live there after the merger.
"I hope that something will change," Mr. Pereyra said at BWI yesterday. "I think we'd be better off if the merger went through. It would be better for job security. It would be a bigger company with more options."
However, Nicole Keith, a professor at the University of Southern Indiana, said the deal's failure could benefit consumers by eliminating a giant of an airline that might dictate prices and service standards to passengers. She was waiting to catch a flight at BWI yesterday after visiting a friend in Washington.
"The more options [consumers] have the better," Miss Keith said. "If they were to merge, I don't know what would happen. The fewer airlines there are, the more expensive flights are going to be."
Industry analysts predicted US Airways would be sold off in parts. Airlines they said would be interested in buying US Airways' assets include AirTran Airways, Continental Airlines, Southwest Airlines and Delta Air Lines.
"The most important thing we've been saying throughout this process is that it's important for the government to institute some kind of proceeding to ensure affordable, fair competition," said Jim Brown, spokesman for Orlando-based AirTran Airways, a low-cost air carrier that runs many regional routes along the East Coast. "If there needs to be some reallocation of slots at some place like Reagan National, it should go to affordable-fare carriers."
He predicted that US Airways' regular customers would lose their frequent-flier miles if the airline fails, unless they redeem them by Aug. 23 with American under a sharing agreement between the companies.
American was brought into the deal between United and US Airways in January when it agreed to buy 49 percent of DC Air for $82.4 million.
"Frequent-flier programs are simply a marketing tool of most airlines," Mr. Brown said. "It's not something that's generally seen as being an asset that is sold and purchased."
Continental offered in October to pay $215 million for some US Airways assets in the Washington area. United's parent, UAL, had planned to sell them off as part of the deal to create DC Air. The sale was never completed.

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