More, including the demise of Soul Plane, from the front page of tomorrow morning's Washington Post:
United, US Airways to Call off Acquisition Deal
By Keith L. Alexander
Washington Post Staff Writer
Monday, July 2, 2001; Page A01
United Airlines plans as early as today to call off its $12.3 billion acquisition of US Airways, a United executive said yesterday.
The decision by Chicago-based UAL Corp., United's parent, to abandon the biggest merger proposal in U.S. aviation history raises questions about the future of the Arlington-based US Airways Group Inc. and its 46,000 employees. US Airways Chairman Stephen M. Wolf has maintained that the airline cannot survive as a stand-alone carrier against larger operations, such as United or American Airlines, or smaller, low-cost carriers such as Southwest Airlines Co.
The move also nullifies the creation of DC Air, the airline that was to be headed by Black Entertainment Television founder Robert L. Johnson. United, the nation's second-largest airline, proposed creating DC Air to try to appease antitrust regulators that a combined United-US Airways would not be too dominant on the East coast. DC Air would have been the largest airline owned by a minority. Johnson declined to comment on yesterday's developments.
The decision to pull out of the acquisition proposal came after the airlines had repeated problems satisfying Justice Department antitrust concerns over the complex deal, said the United executive, who requested anonymity.
"We still believe the merger was the right course for us," the executive said. "But we can't satisfy the Department of Justice concerns. So we decided to abandon the transaction." The executive said it was unlikely that United would return to acquire US Airways even with a lower bid, "unless there was a change in the regulatory environment."
US Airways declined to comment on United's move. But an executive familiar with US Airways said United's decision left the airline "disappointed."
If US Airways, the nation's sixth-largest airline, can't find another partner, Wolf has said the airline could end up filing for Chapter 11 bankruptcy protection. Last year US Airways reported a loss of $269 million and revenue of $9.27 billion. In the first quarter this year, US Airways reported a loss of $178‚million and revenue of $2.24 billion.
Some industry analysts, airline union leaders and other airline executives have said, however, that US Airways could improve financially and remain independent by controlling its costs, eliminating unprofitable routes and generally tending to the business of running the airline. Wolf, however, may not stay at US Airways to carry that out.
"It is very unlikely Wolf will be there three years from now," said Darryl Jenkins, head of George Washington University's Aviation Institute. "I doubt they'll go into bankruptcy any time soon, but they're going to have to do some real serious reorganization."
While the airline's executives have focused on completing the proposed acquisition, competitors such as Delta Air Lines Inc. and low-fare carriers including Southwest, AirTran Airways and JetBlue Airways have increased operations in US Airways' Northeast route system.
Jenkins said US Airways has the highest operating costs in the industry, so it is unlikely another airline would be interested in acquiring it in its entirety. Rick Dubinsky, chairman of United's pilot union and a member of that airline's board of directors, said last week that United would wait and see if US Airways would sell off various parts of its operations such as its East Coast routes, rather than try to acquire the entire airline.
US Airways' value is higher if it "sold components off rather than being sold as a complete entity," Jenkins said.
However, US Airways executives have said in the past that selling off its most profitable components would make it more difficult for the airline to restructure itself into a profitable operation.
Under terms of its agreement, United has to pay US Airways $50‚million if it pulled out of the deal. US Airways senior management, including Wolf, still would receive a total of almost $20 million in supplemental benefits and vesting stock options for having set up the deal.
Wall Street is expected to applaud United's move. Airline analysts have said United's offer of $60 a share was too much, especially now that the economy is much weaker than it was a year ago and that the airline should instead focus on improving its operations.
United chose to call off the agreement now instead of waiting until after Aug. 1, the deal's deadline, so United executives could focus immediately on improving operations, the executive said. Since United first announced the deal in May 2000, shares of UAL have fallen 41 percent, closing Friday at $35.15 a share. Shares of US Airways have fallen 7.6 percent since the deal was announced, closing Friday at $24.30 a share.
United, which last year reported a profit of $50 million and revenue of $19.3 billion, has had a rough start financially this year. The parent company reported a first-quarter loss of $305 million and revenue of $4.42 billion. The company also expects a loss in its second fiscal quarter as the number of travelers decline and fuel costs rise this year. The airline, with operations that were severely affected last summer by contentious negotiations with its pilots union, is now in talks with leaders of its machinists union.
United had to make a decision soon about the US Airways deal. It had until July 11 to notify the Justice Department of its intention to go ahead with the acquisition. Failure to do so would have automatically doomed the agreement because the airlines promised antitrust regulators that they would provide 21 days' notice before closing the acquisition.
Since the deal was announced, members of Congress, consumer groups and other airlines have said the deal was anti-competitive. United and US Airways tried various strategies to get the deal past the mounting government resistance. United brought American Airlines into the complex deal in January, agreeing to sell off 20 percent of US Airways' assets to American, including half of the US Airways Shuttle and 49 percent of DC Air.
United argued that American Airlines' participation ensured fierce competition, but critics said the changes handed control of East Coast air traffic to the nation's two largest airlines.
Most recently, in a last-ditch effort to meet antitrust officials concerns, United had proposed selling off some routes to low-fare carriers such as Atlanta-based Air Tran or Denver-based Frontier Airlines to generate the competition government regulators require as a condition for approving the deal; buying only parts of US Airways instead of the whole airline; and altering its plans for the Washington-New York-Boston shuttle. At one point, United even considered dumping its proposal for DC Air.