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US Air, America West accelerate merger talks


May 19, 2005: US Airways Group Inc, seeking to emerge unscathed from a Chapter 11 bankruptcy protection, and America West Holdings Corporation have intensified their talks for a possible $ 1 billion merger that would create sixth-biggest airline in US. Apart from bailing out US Airways, if the merger talks succeed, the new company would have the biggest feeder traffic in the country.

The discussions, which are underway, has been accelerated and will be wrapped up by the end of the week.

The possible value of the merger would be about $1 billion, while the terms which are being discussed include infusion of $500 million in new capital. The participants for the capital infusion would include Air Wisconsin and Retirement System of Alabama, and certain other parties who have not been fully determined.

The companies are also believed to be in talks to raise up to $400 million, of which $250 million, if received, would go to Airbus Industrie in return for 20 planes. The order would give Airbus SAS, the world's leading plane builder, its first North American customer for the A350 jetliner.

Air Canada and two hedge funds are involved in the discussions, according to reports in the US press.

Additionally, General Electric, which is the largest creditor to both the airlines, is working out its own financing arrangement with the carriers.

US Airways and America West, which began talking about a deal more than a year ago, are in the final stages of their plans to merge to become one of the nation's largest low-cost airlines. If the airlines reach a merger agreement, the combined airline is likely to keep the name US Airways, which is a well-known brand in the county.

America West was trying to avoid investing billions of dollars in a takeover of US Airways. Instead, the two airlines are trying to form a strategic merger, with a possible holding company serving as the owner of the combined airline.

Arlington-based US Airways is the nation's seventh-largest carrier. The airline has been struggling to transform itself into a hybrid carrier with budget-airline costs while still offering traditional airline amenities, such as first-class cabins and international routes.

US Airways, which has 28,000 workers, has slashed more than $1 billion in labour costs since filing for Chapter 11 bankruptcy protection in September, but its costs are still higher than other budget airlines, including America West, Southwest Airlines Co. and JetBlue Airways Corporation.

US Airways posted a net loss of $611 million in 2004 and revenues of $7.12 billion. The Chapter 11 filing was its second in less than two years.

An investment partnership could result in increased feeder traffic between the two airlines. America West, the nation's eighth-largest carrier, is strong in Phoenix and Las Vegas and could benefit by securing passenger feeder lines from the East, where US Airways is strongest and has hub airports in Philadelphia and Charlotte.

America West, founded in 1983, has 13,000 employees, and primarily serves destinations in the western United States. During the past three years the airline has transformed itself into a low-cost carrier and it was one of the first airlines to implement buy-on-board meal service.

However, the companies in a joint statement said that there was no assurance the discussions would lead to an agreement. The airlines didn’t provide details and said they wouldn’t comment further until there is an agreement or the talks are terminated.

A merger would require approval from parties including the bankruptcy judge and US Airways' top creditor, General Electric Co. America West shareholders, unions and the federal government would also need to sign off on it.

Under the terms of its bankruptcy financing deal with Republic Airways Holdings Inc., US Airways must find a third partner willing to invest at least $100 million. Republic and Air Wisconsin have both agreed to put up $125 million.

US Airways has until May 31 to file a reorganization plan with the bankruptcy court in Alexandria, Virginia. It hopes to emerge from Chapter 11 by the end of August.



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