- The Washington Times - Tuesday, October 28, 2003

Atlantic Coast Airlines said yesterday it will shed its contracts with United Airlines and operate independently after accusing the company of secretly participating in a hostile takeover attempt.

Atlantic Coast, a regional airline that flies routes as a contractor for United, made the announcement one day after filing a lawsuit against the nation’s second-largest air carrier in U.S. District Court for the District of Columbia.

“We are confident that as an independent carrier we will be able to offer better overall value and service for consumers and the communities we will serve,” said Kerry Skeen, Atlantic Coast’s chairman and chief executive officer.

The airline is based at Washington Dulles International Airport. It operates East Coast and Midwestern regional flights under the names United Express and Delta Connection.

About 85 percent of its revenue comes from contracts with United, most of the rest from Delta Air Lines.

Atlantic Coast officials expect to be released from further contract obligations with United by the bankruptcy court overseeing its finances. United filed for bankruptcy Dec. 9 in federal court in Chicago.

“We believe they will release us from it,” said Rick DeLisi, Atlantic Coast spokesman. “Once that happens, we will begin service with the new low-fare airline.”

Afterward, Atlantic Coast would compete with United.

The relationship is ending on a sour note because of the lawsuit Atlantic Coast filed against United and Mesa Air Group, a Phoenix-based regional air carrier that operates in the West and Midwest under contracts with larger airlines.

On Oct. 6, Mesa Air Group offered Atlantic Coast a takeover deal that included buying $513 million of its outstanding shares. When Atlantic Coast’s board rejected the offer last week, Mesa Air Group said it would pursue the deal with offers to Atlantic Coast’s shareholders.

Atlantic Coast’s lawsuit says United is an “undisclosed backer” of Mesa Air Group’s takeover attempts. The two companies are trying to “prevent Atlantic Coast from establishing an economically viable, low-fare, low-cost airline that would compete directly against United and Mesa,” the lawsuit says.

Negotiations between United and Atlantic Coast on terms for renewing their contracts failed.

If United could gain control of Atlantic Coast, it would eliminate the contract disagreement and help United emerge from bankruptcy, which is another reason for its “undisclosed” partnership with Mesa Air Group, the lawsuit says.

Atlantic Coast’s accusations prompted denials from United and Mesa Air Group.

“United Airlines reaffirms categorically that it did not participate in Mesa Air Group’s offer to acquire [Atlantic Coast], and to suggest otherwise is baseless and irresponsible,” United said in a statement. “In fact, United expressly declined Mesa’s invitation to participate in its offer.”

The lawsuit also says Mesa Air Group’s directors and insiders, including its chief executive officer, engaged in questionable trades of the company’s stock before the merger proposal.

Mesa Air Group spokesman Tim Payne called Atlantic Coast’s accusations “outrageous.”

“It is desperate act to try to stop us from putting our compelling business case to their shareholders,” Mr. Payne said.

He also predicted failure for Atlantic Coast’s plan to operate independently rather than relying on contracts with major airlines.

“[Atlantic Coasts] only alternative is a high-risk strategy that already has gone down like a lead balloon with their shareholders,” Mr. Payne said.

Atlantic Coast has 4,600 employees and 148 aircraft, most of them midsized, 50-seat Bombardier jets. Mesa Air Group operates 150 aircraft with 4,000 employees.

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