UAL-USAir merger called unlikely this quarter

Regulators need more time to weigh complex takeover

April 19, 2001|By Meredith Cohn | Meredith Cohn,SUN STAFF

The parent company of United Airlines said yesterday that its $4.3 billion takeover of US Airways isn't likely to happen by the end of the second quarter.

"We have a very complicated transaction," said Frederic "Jake" Brace, senior vice president-finance of UAL Corp., United Airlines' parent, referring to the deal that was unveiled nearly a year ago. "Taking regulators through it is just taking a long time."

In a filing with the Securities and Exchange Commission, UAL said: "Given the complexity of the transactions and the review process, the company is no longer optimistic that it will close the transaction in the second quarter."

Rakesh Gangwal, president and chief executive officer of US Airways Group Inc., parent of the airline, told analysts yesterday that the airlines were doing what they could to press their case with government regulators whose approval is needed.

A larger network resulting from the merger would help his airline compete, he said during a conference call about the company's first-quarter earnings.

"There is no Plan B," Gang- wal said about steps US Airways would take if federal and state regulators rejected the merger.

The agreement with UAL calls for approval by Aug. 1.

"When all is said and done, this is not a short process. It's very complex," he said.

To appease the Justice Department's Antitrust Division, the airlines have already said they will divest themselves of certain assets and sell part of US Airways to AMR Corp.'s American Airlines.

Robert Milmore, an airline industry analyst for Arnhold and S. Bleichroeder Inc., said all eyes are on the merger right now.

"There's still some time to get the approvals, but the longer it drags on the more skeptical investors will get," he said. "It is a very complicated transaction. Regulators are looking at it. They're concerned about further consolidation following this deal."

Yesterday, both US Airways Group and UAL blamed a weak economy and rising costs for first-quarter losses at the airlines.

US Airways Group reported a loss of $178 million, or $2.66 per diluted share, for the quarter that ended March 31. That compares with a $115 million loss, or $1.72 a share, in the first quarter of 2000. The results exclude the cumulative effect of an accounting change.

Revenue at US Airways, the second-busiest carrier at Baltimore-Washington International Airport, was $2.2 billion in the first quarter of 2001, up 6.8 percent from $2.1 billion in the first quarter of 2000.

US Airways Group's shares fell $1.61, or 4.5 percent, to close at $33.75 on the New York Stock Exchange yesterday.

UAL Corp. reported a first-quarter loss of $305 million, or $5.82 a share, compared with first-quarter 2000 earnings of $136 million, or 84 cents a diluted share. Those results also exclude the effects of an accounting change.

Revenue was $4.4 billion in the first quarter of 2001, down 2.7 percent from $4.5 billion in the first quarter of 2000.

UAL Corp.'s shares gained $2.75, or 8.2 percent, to close at $36.40 on the Big Board.

Wire services contributed to this article.

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