- The Washington Times - Saturday, July 28, 2001

United Airlines' parent company and US Airways ended their purchase agreement yesterday after the Justice Department said it would sue to block the deal.

The Justice Department effectively killed the deal yesterday when it said it would file an antitrust lawsuit next week unless the airlines abandoned the deal. The department claimed the plan to produce the nation's largest airline would reduce competition, raise fares and harm consumers.

In response, UAL Corp. and US Airways released a statement yesterday afternoon saying they had terminated the agreement and that UAL would pay a $50 million fee.

UAL said last month it was backing out of the deal, but under pressure from US Airways decided instead to await the decision from Justice, which had been expected to try to block the purchase.

The termination eliminates US Airways' best hope for regaining financial solvency, according to industry analysts.

The Justice Department said the deal would violate antitrust laws by reducing competition in major cities with long nonstop flights, such as Washington, Philadelphia, Los Angeles, San Francisco and Denver, where US Airways and United are each other's only nonstop competitors.

Arlington-based US Airways, the nation's sixth-largest airline, is the biggest tenant among major airlines at Ronald Reagan Washington National Airport. The deal's failure leaves the fate of the 186 daily flights and 2,675 employees based at the airport in doubt.

US Airways said in a statement yesterday that it was "disappointed that the merger with United will not go forward" and planned to announce plans soon on how it will cope with its financial difficulties.

"The merger would have guaranteed jobs for all US Airways employees, ensured continued service to many medium-sized and smaller communities, been beneficial for US Airways' shareholders and created Washington-based DC Air," the airline said.

US Airways operates 41 daily flights and has 134 employees at Washington Dulles International Airport. It has 2,420 employees and operates 152 daily flights out of Baltimore-Washington International Airport the second-largest airline there.

"US Airways is a long way from going belly up," said Ray Neidl, an airline industry analyst for the Wall Street financial firm ABN Amro. "However, they do need to take some action immediately."

The carrier's most likely options would be to find another business partner, such as a large foreign airline; to sell the company to employees; or to sell off the airline in parts to anyone who would buy it, he said.

US Airways Chairman Stephen M. Wolf had said United's purchase was the company's best hope in saving it from bankruptcy as smaller regional and low-fare airlines chip away at its customer base.

The agreement called for UAL Corp. to pay $4.3 billion for the airline and assume $8 billion in debt. Since the merger was proposed 16 months ago, US Airways has lost nearly $1 billion.

"The problem is not going to be fixed until they can lower their unit costs," Mr. Neidl said. Lower salary and equipment costs for smaller competing airlines mean the solution for US Airways is elusive.

"If I had that answer, I'd be running the airline," Mr. Neidl said.

The Justice Department said yesterday a merger would "reduce competition, raise fares and harm consumers." The attorneys general of 12 states, including Maryland, have said they would join the lawsuit.

"This merger represents a direct threat to the business environment of Maryland and confronts Marylanders flying from this area with the prospect of higher prices and diminished service," Maryland Attorney General Joseph Curran Jr. said.

The deal would have given United a monopoly on business-class service at Dulles and made it the largest carrier for business passengers at BWI, Mr. Curran said. It also would have given United nearly all the nonstop transcontinental routes in the Baltimore-Washington area.

The decision was a blow for both US Airways and DC Air, the regional carrier that was to have been created from the deal and operated by Black Entertainment Television founder Robert L. Johnson. DC Air was to have taken over US Airways' routes, airplanes and equipment based at Reagan National to satisfy antitrust concerns.

"I am disappointed," Mr. Johnson said. "It was a once in a lifetime opportunity to own an airline, to be the first African-American to own an airline of this magnitude."

DC Air would have operated routes among 55 mostly mid-size cities along the East Coast, such as Raleigh, N.C.; Albany and Buffalo, N.Y.; Fort Lauderdale, Fla., and Burlington, Vt.

"We saw the merger as a pro-competitive benefit to the flying public in terms of reduced air fares and better service," Mr. Johnson said. "The Justice Department saw it exactly the opposite."

Industry analysts said Chicago-based United decided to wait for the Justice Department decision to minimize the risk of litigation by US Airways' shareholders.

The airline's mounting debt and labor challenges contributed to United's lackluster desire to proceed, analysts said.

Shares of UAL fell 29 cents to $33.63 on the New York Stock Exchange; US Airways dropped 89 cents to $17.26.

AP photos

The two air carriers sought to combine operations. But the Justice Department yesterday blocked the deal, citing its antitrust concerns.

UAL flight attendants don't have to worry the company will fold. But the future of US Airways is uncertain.

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