- The Washington Times - Thursday, May 19, 2005

US Airways Group Inc. announced its long-awaited consolidation yesterday with America West Holdings Corp., a merger that would turn two struggling airlines into one with $10 billion in annual revenue and extensive routes on the East and West coasts.

“We think this is the beginning of something that could change our industry,” said America West President and Chief Executive Doug Parker, who will become the head of the new company.

The combination would save US Airways from liquidation, but jobs are likely to disappear locally because the new company will be based at America West’s Tempe, Ariz., headquarters instead of at US Airways’ Arlington office.

The new airline, which will use the US Airways name, would create the nation’s fifth-largest carrier and be funded by $1.5 billion in new equity.

The proposed merger must be approved by U.S. Bankruptcy Court, Justice Department, Transportation Department and America West shareholders.

Mr. Parker said the union of America West and US Airways would create a full-service, low-cost carrier. The new company will try to compete with budget carriers JetBlue Airways Corp. and Southwest Airlines Inc., a bitter rival of both America West and US Airways.

The airlines serve a combined 275 cities, and the companies said passengers will receive credit for all frequent flyer miles they accrue.

US Airways employs about 600 people at its Arlington headquarters, and some US Airways’ employees are likely to lose their jobs.

“It’s not possible to estimate how many layoffs there may or may not be in D.C.,” Mr. Parker said.

The airlines decided to make Arizona its headquarters based purely on economic reasons, US Airways President and Chief Executive Bruce Lakefield said.

“It’s much less expensive to be here,” he said during a conference call from America West’s offices.

US Airways and America West initially discussed merging more than a year ago, but Mr. Lakefield put talks on hold because the company was preoccupied with its ongoing bankruptcy case. US Airways filed for its second bankruptcy in September.

Earlier this year, Mr. Lakefield approached Mr. Parker, indicating his interest in restarting negotiations. By then, US Airways had shed more than $1 billion, mostly through restructuring labor agreements.

America West and US Airways were able to conclude discussions and announce a deal yesterday because they have attracted massive investment. Mr. Parker said four companies will invest $350 million in the combined company and the new airline has access to another $1.1 billion in cash and debt refinancing.

Investors include Airbus SAS and ACE Aviation Holdings, which owns Air Canada.

America West and US Airways owe a combined $1 billion to the Air Transportation Stabilization Board, but their merger could save up to $600 million annually, Mr. Parker said.

The combination ensures that US Airways won’t face extinction, said Michael Roach, an airline analyst and co-founder of America West, which began flying in 1983.

“This is clearly in the immediate interest of US Airways. They definitely needed money, and they weren’t attracting investors,” he said.

US Airways got Air Wisconsin Airlines Corp. and Republic Airways Holdings Inc. to invest $125 million each, provided US Airways agrees to use those carriers as part of its US Airways Express regional fleet.

While US Airways needed money, America West needed a partner. Mr. Parker has said for months that the industry needed to consolidate to reduce overcapacity.

Integrating the airlines’ work forces could prove challenging because of their differences.

“Protecting and defending the careers of America West pilots are our top priorities,” said J.R. Baker, chairman of the America West unit of the Air Line Pilots Association, the union representing pilots.

While America West is merely 22 years old, US Airways is 66 years old. In addition, US Airways has twice as many employees as America West. Together, they will have more than 44,000 employees.

The airlines are likely to pare their union work force by comparing seniority lists and letting go of workers with the least amount of experience.

“The guys at US Airways are going to say to guys at America West ‘You go to the bottom of the list.’ The guys at America West are going to say ‘We saved your company, so you go to the bottom.’ Some statesmanship will be needed,” Mr. Roach said.

“I hope the integration is seamless. The devil is in the details, but if this provides job security, it’s going to be great,” said Alin Boswell, president of Council 41 of the Association of Flight Attendants, which represents 420 Washington-based flight attendants at US Airways.

The new company will operate a fleet of 361 planes, down from their combined fleet of 419 at the beginning of the year.

The new airline will be governed by a 13-member board, including six members from the current America West board and four members from the current US Airways board.

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