- The Washington Times - Wednesday, April 20, 2005

From combined dispatches

America West Holdings Corp. is “in and out” of discussions with other airlines as growing losses in the industry force carriers to consider combining, Chief Executive Officer W. Douglas Parker said yesterday.

US Airways Chairman David Bronner confirmed late Tuesday that the Arlington-based carrier is in advanced discussions with America West to create an airline with nationwide reach.

“We are in and out of talks with other carriers on a fairly regular basis,” Mr. Parker told analysts and reporters on a conference call after the company announced a $33.6 million first-quarter profit. He declined to be more specific about the companies with which it is talking or the content of the discussions.

Mr. Bronner cautioned that no deal is imminent, though he said that a combined US Airways-America West would be better positioned to compete with discount rivals, such as Southwest Airlines, AirTran Airways and JetBlue Airways.

“There’s no requirement in our mind to go through some consolidation,” Mr. Parker said, adding that the company probably wouldn’t use “a lot” of its $345.3 million in cash, cash equivalents and short-term investments to buy another airline.

Earlier yesterday, America West, parent of the eighth-largest U.S. airline, posted a first-quarter profit on gains from hedging against rising fuel prices.

The potential benefits of uniting America West and US Airways — wedding a carrier from the West with one from the East and reducing capacity in both markets — may be dwarfed, analysts said yesterday, by the myriad costs and complications that stand in the way of any deal.

“Up to a point, we believe the idea has merit,” UBS airline analyst Robert N. Ashcroft said. He and other analysts said that gaining the necessary support of shareholders, employees and some deep-pocketed investors could prove difficult, however.

An outright merger would be the toughest deal to accomplish, analysts said, so the companies could decide to form a holding company and operate under a code-share agreement. That option would expand each carrier’s reach and revenue, while leaving the knottier details of cost-cutting off the table, at least temporarily.

Daniel Kasper, who runs the transportation practice for the consulting firm LECG in Cambridge, Mass., said there would be benefits for both airlines if they could pull off some kind of partnership. “It’s not like sitting still is a viable option for very long,” he said.

America West considered buying ATA Airlines late last year after the Indianapolis-based airline filed for Chapter 11, but backed away as the cost of the transaction escalated.

Analysts said a merger between US Airways and America West might be approved by regulators, but the remaining financial and logistical challenges would be significant.

With soaring jet fuel prices and low fares sapping the industry’s limited cash reserves, these carriers may need an investment of $500 million or more to keep them in business long enough to consummate a deal.

America West is the healthier of the two airlines and therefore has more to lose, several analysts said. US Airways has been in Chapter 11 bankruptcy since September 2004, its second trip to bankruptcy court in two years.

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