TWA agrees to buyout

A sale to American stokes worries about airline consolidations

Fewer choices at BWI?

United, US Airways, DC Air are parties to various deals

January 11, 2001|By Paul Adams | Paul Adams,SUN STAFF

Trans World Airlines has filed for bankruptcy protection and agreed to be purchased by American Airlines for about $500 million in cash, putting an end to one of the oldest names in the aviation business and accelerating a consolidation frenzy that Maryland officials fear will leave Baltimore-area travelers with fewer choices and higher fares.

The TWA purchase is just one in a series of complex transactions that would also have American pay rival United Airlines, the world's largest carrier, $1.5 billion for certain assets that United plans to acquire as part of its $11.6 billion merger with US Airways.

American further agreed to buy 49 percent of DC Air, a carrier created to take over much of US Airways' operations at Reagan National Airport in Washington, for $82 million.

All told, the transactions total about $5.08 billion and would leave American, the nation's second largest carrier, and United in control of slightly more than half the domestic market now controlled by major U.S. airlines.

Excluding expected post-merger changes in service, a combined United-US Airways would capture about 30.6 percent of the passengers at Baltimore-Washington International Airport and a combined American-TWA would handle about 7 percent, based on 2000 passenger figures.

While saying it is too soon to comment on the American-TWA deal, Maryland transportation officials remain opposed to the United-US Airways merger because, they say, it would reduce service to BWI and leave Southwest Airlines, the dominant carrier at BWI, with a monopoly in some markets.

United has said it will eliminate US Airways' MetroJet service from BWI to at least eight cities if the deal is approved, but airport officials fear much deeper cuts.

"Nothing that we've heard in response from United to date alters our fundamental opposition to the merger," said John Porcari, state transportation secretary.

Airline analysts said the deals were crafted to ease regulatory concerns about the United-US Airways merger, which has come under heavy fire from consumer groups and congressional leaders who fear further consolidations in the industry.

Analysts were mixed yesterday on whether the latest deals would help or hurt chances for approval by the U.S. Department of Justice.

"All things being equal, United improved its chances of it going through at this point," said Darryl Jenkins, executive director of the George Washington University Aviation Institute.

It has widely been speculated that the latest round of airline consolidations will result in the nation's six largest carriers being reduced to a field of three mega airlines controlling about 85 percent of the market.

But Jenkins and other analysts said regulators may balk at approving any new deals if United and American win approval for their mergers. That could leave Delta Air Lines, Continental Airlines and Northwest Airlines out in the cold, and put American and United far ahead of their closest competitors.

"The Justice Department has to decide whether the uniqueness of these two deals should be allowed to motivate a restructuring in the industry that they might otherwise not have favored," said Michael E. Levine, a former airline executive who now teaches at Harvard Law School.

Consumer groups and politicians have blasted the deals over the past two days, saying the mergers will subject consumers to more airport delays, larger labor disruptions and higher fares. Congressional leaders have asked regulators to scrutinize the mergers for any negative impact on consumers.

"We would soon lose the low fares and other consumer benefits which we have gained from airline deregulation," said Rep. James L. Oberstar, the Minnesota Democrat who is ranking minority member on the House Transportation and Infrastructure Committee.

Said Mark Cooper, research director of the Consumer Federation of America: "This is a turning point. There's no more fiction about competition in the airline industry. Consumers will pay higher prices and lower services."

American and United officials counter that the deals will increase customer choice while maintaining competition in key markets. Both of the big carriers also have billed themselves as the saviors of two financially strapped airlines that might otherwise fail; US Airways and TWA have struggled in recent years while other major airlines have recorded record profits.

"Without the acquisition of TWA by American, there is a grave risk that TWA would have simply gone away this week or next," said Donald J. Carty, chairman and chief executive of American Airlines.

That likely means the end was inevitable for St. Louis-based TWA, one of the storied names in the aviation industry. The airline dates to 1925 and was once owned by the late multimillionaire and aviator Howard Hughes. TWA was a longtime force in the overseas travel market, catering to movie stars and popes. But it gradually declined in stature after the industry was deregulated in the late 1970s and never recovered.

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