United-US Airways deal could hit antitrust snags

Congress, pilots quick to question takeover proposal

`Serious concerns' raised

May 25, 2000|By Robert Little | Robert Little,SUN STAFF

United Airlines' proposed takeover of US Airways, an $11.6 billion deal that would vault the world's largest air carrier into a dominant role in major travel markets throughout the United States, came under intense scrutiny from Congress, regulators and labor groups yesterday concerned that the deal will flatten competition and boost airfares nationwide.

Even as company officials formally announced the takeover in New York's Waldorf-Astoria hotel, calling it a "clean" deal that will improve air travel and survive regulatory review, skeptics took aim at the proposed transportation powerhouse.

A Justice Department spokeswoman said a review is underway. United Airlines' pilots union, which owns 25 percent of the carrier's stock, scheduled an emergency meeting with lawyers and financial advisers. The House Judiciary Committee added the topic to a June 14 congressional hearing, with the committee's chairman saying he was "deeply concerned that this merger may further lessen competition in the airline industry."

Few condemned the proposed takeover outright. But the reaction to the proposal to join the nation's No. 1 and No. 6 airlines made clear that the companies will be jousting with their lawyers long before they'll be sharing the skies.

`Lack of competition'

"This is an industry that suffers from a lack of competition, and this is a merger between two of the largest firms in that industry - there are serious concerns here," said Mark Cooper, director of research for the Consumer Federation of American, a consumer advocacy group.

"It's no surprise that it's being attacked. These guys have to recognize they have a problem."

The deal, formally unveiled yesterday, was an all-cash offer of $60 per share for US Airways' stock. The purchase will cost United Airlines $4.3 billion initially, and the airline will assume $1.5 billion in debt and $5.8 billion in aircraft leases.

In return, the world's largest airline will acquire a carrier responsible for up to a third of the air traffic on the East Coast - a region considered one of United Airline's weakest.

Eight major hubs

The combined airline would fly more than 6,400 flights a day on more than 560 routes worldwide. It would employ 145,000 people, collect $25 billion in annual revenue and operate major hubs in Pittsburgh, Philadelphia, Charlotte, Washington, D.C., Chicago, Denver, Los Angeles and San Francisco.

"We believe we have created a global airline that will create significant benefits to our customers," said United Airlines Chairman and Chief Executive Officer James E. Goodwin.

"We believe we've created the nation's first truly continental network."

The two companies tried to merge five years ago, but were thwarted by objections from United's powerful pilots union. Today, three labor representatives sit on United Airline's Board of Directors, which has already approved the deal.

Nevertheless, United's pilots expressed "strong concerns" about the deal, particularly since the union and company managers are at odds over a new contract. The pilots have been worried about integrating new employees into their seniority structure, and could hold sway when the proposal is submitted to approval by shareholders.

"If implemented, the acquisition would shape our airline for years to come," said Capt. Rick Dubinsky, head of the Airline Pilots Association at United. "I am disappointed that the company would enter into a transaction of this magnitude without agreement from the United pilot group on all issues."

The biggest hurdle

Union reluctance may not be the largest hurdle, however. Antitrust experts say the biggest obstacle could be the U.S. Department of Justice, the Federal Trade Commission, or any other regulatory body with an interest in preserving competition among American corporations.

Corporations with antitrust problems face a climate generally considered more hostile than ever before, with regulators exacting costly concessions from proposed mergers between companies like British Petroleum and Amoco, Alcoa Inc. and Reynolds Metal Co. and MCI Worldcom and Sprint.

And the FTC recently announced a policy of opposing mergers that require complex, detailed reviews of individual markets nationwide - as the airline merger likely would.

Plotting the course

Goodwin and US Airways Chairman Stephen M. Wolf said yesterday that since last November, when they first broached the idea of a takeover, United and US Airways have carefully crafted a merger plan designed specifically to surmount the antitrust obstacles that they knew would come.

That meant agreeing to sell off business in the Baltimore-Washington market, where a combined airline would control all three major airports. US Airways' flights out of Ronald Reagan Washington National Airport, with the exception of its lucrative Shuttle service and flights to hubs such as Charlotte and Pittsburgh, will be sold to a board member who plans to create a new airline.

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