- The Washington Times - Tuesday, January 9, 2001

AMR Inc.'s purchase of Trans World Airlines Inc. would mean just two airlines American Airlines and United Airlines' parent, which plans to buy US Airways Group Inc. would control nearly half the U.S. aviation market.

But industry analysts still expect federal regulators to approve both deals.

"We're going to have competition amongst giants," said Darryl Jenkins, professor of airline economics at George Washington University.

Officials at AMR, American Airlines' parent company and the nation's second-largest carrier, and TWA declined to comment on the plan yesterday, but TWA is expected to file for bankruptcy protection tomorrow, leading the way for American to purchase the struggling St. Louis-based airline. TWA has less than 4 percent of the U.S. airline market.

Terms of the deal have not been disclosed, but industry sources said American would buy TWA for at least $2.5 billion.

The complicated transaction improves the chances of UAL Corp., United's holding company, of buying Arlington, Va.-based US Airways, the nation's sixth-largest carrier, because it includes DC Air, the regional airline to be spun off after the United-US Airways consolidation.

The two deals American's purchase of TWA and United's union with US Airways "are oddly intertwined," Mr. Jenkins said.

American would spend an undisclosed amount to buy a minority stake in DC Air.

That acquisition could satisfy some regulatory concerns that may have prevented the Justice Department from approving United's estimated $11.6 billion takeover of US Airways. United announced in May it planned to buy the Arlington carrier.

"This improves the chances, possibly substantially improves the chances, that United will take over US Airways," said Larry Fullerton, a lawyer at Powell, Goldstein, Frazer & Murphy, who once headed the Justice Department's merger-review section.

That's because it cuts the close tie that would have kept United and DC Air connected. Robert Johnson, who founded Black Entertainment Television and built the District of Columbia-based company into a $2 billion media giant, planned to invest $170 million of his own money to buy US Airways' operations at Ronald Reagan Washington National Airport.

That deal was intended to ease antitrust concerns by giving 222 takeoff and landing slots now assigned to US Airways to DC Air.

But DC Air's fleet initially would have been made up of eight turboprop planes bought from US Airways, 10 Boeing 737 airplanes leased from United and 19 regional jets leased from another carrier. Now DC Air is likely to get those planes from American Airlines, Mr. Fullerton said, and DC Air won't appear to be controlled by the company it sprang from.

The pact also would make DC Air more competitive because American, a United competitor, would own 49 percent of the new regional carrier.

"There was skepticism in the beginning [when United announced plans to take over US Airways and spin off DC Air] that United was picking its own competitors," Mr. Jenkins said.

"What United is doing is listening to the Justice Department and responding to their concerns," he said.

Mr. Johnson would own 51 percent of DC Air, according to the terms of the new ownership deal. Mr. Johnson declined comment yesterday.

American also would buy 20 percent of US Air's assets. US Airways officials declined to comment on that part of the deal yesterday.

US Airways and United reached an agreement with the Justice Department late last month to extend review of their merger until April 2. The decision came two days after Congress' investigative arm released a report finding their consolidation could eliminate or reduce competition for about 16 million travelers in 290 markets.

Members of Congress remained skeptical yesterday about industry consolidation.

Rep. James L. Oberstar, Minnesota Democrat, said the proposals intended to ease concerns over the United-US Airways deal like American's purchase of 49 percent of DC Air aren't enough to convince him to support that transaction.

"The new proposal would increase American's size and strength, particularly on the East Coast. The rest of the industry would see both American and United increasing their advantages. There would be great pressure for more defensive mergers," Mr. Oberstar, the ranking Democratic member of the House Transportation and Infrastructure Committee, said in a statement.

Rep. Louise M. Slaughter, New York Democrat, decried American's proposal to buy TWA.

"It would be a travesty for the new administration to let this go forward," said Mrs. Slaughter, who attended the Capitol Hill news conference last month to release the report about the effect of the United-US Airways consolidation on industrywide competition.

Despite that, consumer advocates yesterday expressed support for American's purchase of struggling TWA.

If American's purchase of TWA earns regulatory approval, the new company would control 20.7 percent of the U.S. airline market, according to figures compiled by Aviation Daily, a Washington-based industry publication. United would control 25.1 percent of the market following its purchase of US Airways.

Placing control of nearly 46 percent of the U.S. market in the control of two companies is unlikely to boost fares as long as regional carriers continue to provide competition in American's and United's markets, analysts said.

"These big airlines don't really compete with each other on price. They always move in lockstep with each other on fares. They only really compete on price with the low-fare carriers. As long as the [Transportation Department] ensures that these low-fare carriers can fairly compete with the big carriers, then competition will be preserved in the airline marketplace," said David S. Stempler, president of the Air Travelers Association.

The likelihood that fares increase due to soaring fuel costs and contracts with labor unions is greater than an increase in fares due to mergers, Mr. Jenkins said.

"Delta isn't going to concede any passengers to United or American. They will slug it out," he said.

Delta is the nation's third-largest carrier with 15.3 percent of the market.


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