It must be acquired, or else, US Airways tells Congress

Wolf says midsize airline `facing a perilous future'

March 22, 2001|By BLOOMBERG NEWS

WASHINGTON - US Airways Group Inc.'s future as a midsize airline is threatened and it will have to cut service unless antitrust enforcers approve its acquisition by UAL Corp., the carrier's chairman said yesterday.

The No. 6 U.S. carrier "is facing a perilous future" because it is neither a discount airline such as Southwest Airlines Co. nor a nationwide network carrier such as UAL's United or AMR Corp.'s American Airlines, US Airways President Stephen Wolf told a U.S. House subcommittee.

Wolf's comments came less than a week after the U.S. Justice Department cited Trans World Airlines Inc.'s "bankrupt condition" in clearing its acquisition by AMR.

Because of high labor costs and flying short distances, Wolf said, the carrier loses money on half its routes. If the acquisition isn't approved, "we are going to have to size the carrier down," the chairman said.

U.S. Rep. Peter DeFazio complained that Wolf was reversing earlier testimony that US Airways' existence "absolutely, unequivocally" doesn't depend on the UAL transaction. "Unless Mr. Wolf was not telling the truth then, the basic reason for the merger has not changed," the Oregon Democrat said.

Wolf, who denied changing his story, said in an interview that the carrier isn't making a "failing firm" argument in discussions with the Justice Department and a half-dozen states investigating the merger. U.S. courts regard the argument as a defense to lawsuits challenging mergers as anti-competitive.

Wolf declined to say whether United and US Airways are offering new concessions to allay concerns of antitrust enforcers.

U.S. Rep. Louise Slaughter said that if US Airways is in such difficult straits, "why is United paying such a huge market premium to acquire it?"

State antitrust enforcers oppose combining UAL and US Airways, saying without a restructuring the combination would reduce or eliminate competition in markets both carriers serve.

Justice Department lawyers have indicated "a great deal of concern" about the transaction's impact on low-cost carriers such as AirTran Airways Inc., said Jim Brown, spokesman for the Orlando, Fla.-based carrier. Government lawyers questioned AirTran about the merger's impact on "our ability to expand our network into the Northeast," Brown said.

To preserve competition, United and US Airways have proposed creating a carrier to be called DC Air, which would fly former US Airways routes from Washington's Ronald Reagan National Airport.

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