USAir profits fall but merger chances are up

Numbers support view airline can't survive without a takeover

January 18, 2001|By Paul Adams | Paul Adams,SUN STAFF

Citing higher fuel costs and intense competition from low-cost airlines in the Northeast, US Airways Group Inc. yesterday reported a net loss of $89 million in the fourth-quarter excluding one-time charges.

The parent of US Airways said the larger-than-expected loss amounts to $1.33 per share before the special items, compared with a loss of $47 million, or 68 cents per share, during the same period a year ago. Analysts polled by First Call/Thomson Financial on average had anticipated a fourth-quarter loss of $1.05 per share.

The No. 6 airline's deepening financial woes come as federal regulators are considering its proposed purchase by UAL Corp., the parent of United Airlines, in a deal valued at $11.6 billion in cash and debt.

Though the merger with the world's largest airline faces a difficult battle for approval, many analysts have said that regulators may look upon the transaction more favorably if airline executives can show that US Airways will not survive on its own."[Low-cost carriers] are all going to continue diving into those routes," said Ray Neidl, an analyst with ING Barings. "It doesn't look good for US Airways remaining an independent carrier."

Analysts say the merger became more likely after last week's announcement that No. 2 American Airlines, in its bid for Trans World Airlines, had agreed to purchase about 20 percent of US Airways' assets, a move that could help ease regulatory concerns about the United takeover.

In a conference call with analysts, Rakesh Gangwal, US Airways' chief executive officer, said the airlines still expect to win approval by April 2. He also sought to allay investor concerns that United might try to lower its $60 per share offer for US Airways if it is forced it to give up more assets to win regulatory approval.

"All I can tell you is there's no such activity out there. United is absolutely committed to this transaction the way it has been structured," he said.

The airline's fourth-quarter loss comes despite a 10.4 percent increase in revenue during the three months that ended Dec. 31. Revenue for the quarter was $2.4 billion, up from about $2.1 billion a year earlier.

Expenses increased 8.3 percent to $2.4 billion during the quarter, largely the result of increased fuel costs.

Including a loss related to warrants the company holds in troubled, the airline said its loss was $101 million for the fourth quarter, or $1.50 per share.

For the year, US Airways reported a loss of $166 million excluding the effects of a previously reported change in accounting principles, or $2.47 per share. That compares with a profit of $197 million in 1999, or $2.64 per share.

Gangwal said competition from low-cost carriers such as Southwest Airlines, JetBlue, AirTran and Delta Express continues to eat into US Airways' market share. He repeated the company's claim that its merger with United will spread its expenses and help it compete. US Airways has some of the highest operating costs in the industry.

"Our argument is that long term, US Airways by itself does not see how it can prosper in the marketplace," he said.

US Airways' shares gained 63 cents yesterday to close at $45.50 on the New York Stock Exchange.

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