United weighs buying USAir American Airlines is also involved in negotiations

Industry in time of turmoil

Adverse impact viewed as likely for BWI business

October 03, 1995|By SUZANNE WOOTON | SUZANNE WOOTON,SUN STAFF

United Airlines said yesterday that it is considering buying USAir, a move that would give the nation's largest airline access to valuable East Coast routes but one that raises concerns for BWI, whose future has long been linked to USAir.

The Arlington, Va.-based carrier, by far the largest airline at Baltimore-Washington International Airport, confirmed that it was negotiating with United and said it also has held preliminary discussions with American Airlines, the nation's second-largest airline.

"We've had discussions with both American and United regarding strategic relations up to and including possible acquisition of USAir," Richard Weintraub, a spokesman for USAir, said yesterday.

USAir, the nation's sixth-largest airline, has lost $3 billion since 1988 but recently has seen a turnaround, posting a $112.9 million profit in the second quarter and predicting its first profitable year since 1988. But USAir's costs remain the highest in the industry. And this summer, the carrier abandoned its efforts to secure $2.5 billion in cost-cutting agreements from its unions.

On the horizon is more competition from Southwest Airlines, the low-cost carrier that is launching service into USAir's lucrative territory this winter with low-cost flights to Florida.

Concerns for BWI

A deal with either American or United could spell trouble for BWI, where USAir operates the smallest of its four hubs but handles more than half the airport's 31,000 daily passengers.

"It would give United the opportunity to strip out operations they didn't want," said Alex C. Hart, airline analyst for Ferris Baker, Watts Inc. in Baltimore.

"They'd get access to USAir's extensive route structure with feeds into Florida and the whole Boston-Philadelphia-Washington corridor. Then United could pick and choose what hubs they want," Mr. Hart said. "Those may be choices USAir just hasn't been able to make."

But after yesterday's announcement, a top official at BWI said he didn't see "major problems for BWI with this."

"It's certainly something we have to sit down and analyze," BWI Deputy Administrator Nicholas J. Schaus said. "But it's not as though air service is going to disappear from Maryland's leading airport.

"It would be very risky for a combined USAir-United to ignore BWI."

Such a move, he said, would ignore competition here and at National Airport in Washington.

United, BWI's largest carrier in the mid-1970s before the airport was remodeled, now has about a dozen flights a day there. But United maintains a vast hub 60 miles away at Washington's Dulles International Airport in Northern Virginia.

"It's extremely premature to talk about the impact on BWI, except whatever we do we're going to keep our customers foremost in mind," USAir's Mr. Weintraub said.

There has been no significant merger in the airline industry since USAir bought Piedmont Airlines in 1989. But merger mania has been sweeping the country recently in other industries.

In recent months, the airline industry has seen a recovery as rising traffic and cutbacks in airline fleets have led to higher fares and profits.

United Airlines serves 152 airports in 30 countries and operates a fleet of 543. Besides Dulles, its major hubs are Chicago, Denver, San Francisco, London and Tokyo.

Not immune from the financial woes that have swept the airline industry in recent years, United has lost $800 million since 1989. But in July 1994, its stockholders approved a restructuring plan ceding 55 percent of the company to its employees in exchange for $4.8 billion in wage concessions and work rule changes.

Disclosure to unions

United, headquartered in Chicago, said yesterday that it disclosed its talks with USAir at such an early stage because it had started informing union leaders.

There was no indication how long the two sides have been talking or about how serious discussions were with either United or Dallas-based American.

Mr. Weintraub said USAir, which operates 5,000 flights a day, has an "extraordinary sound franchise in the mid-Atlantic with some of the most strategically valuable routes in the U.S."

"The question is, how do you take that foundation and build upon it," he said. "And one of the ways is the way we announced today."

UAL's stock added $1.875, to $172.75, and USAir was up 12.5 cents at $11.625, both on the New York Stock Exchange.

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