United-US Airways talks collapse

Consolidation of industry falters

May 28, 2008|By New York Times News Service

Talks between United Airlines and US Airways appear to have fallen apart, marking the second time in a month that United has failed to reach a deal with a rival airline and putting the future of industry consolidation in question, people with knowledge of the discussions said last night.

United's board and its chief executive, Glenn F. Tilton, raised questions about the arrangement in the past few days, according to three people who were briefed on the decision-making but spoke on condition of anonymity

There has been little to no contact between United Airlines and US Airways in recent days, and the internal teams of senior executives at both companies, as well as external bankers and lawyers assigned to the project, have put it on "permanent hold," one person involved in the talks said. While it remained possible that the talks could be revived, people involved in the most recent discussions said they never advanced to final negotiations.

"We don't comment on rumors or speculation," said a United spokeswoman, Jean Medina. A US Airways spokesman, Philip Gee, also said his airline would not comment.

The talks between United, the second-largest traditional carrier behind American, and US Airways, the sixth-largest carrier, did not make enough progress for the two sides to reach an agreement in time for a deal to win approval from the Bush administration. That would have had to occur by about Memorial Day to allow time for regulatory scrutiny.

Industry analysts had predicted that soaring prices for jet fuel would push airlines into each others' arms. But so far, there has been just one big merger, the deal announced in April between Delta Air Lines and Northwest Airlines, and there have not been serious discussions between other airlines beyond talk of marketing alliances.

"Mergers in and of themselves are not the answer. Look around the world - airlines are making money, in Europe, Asia and Latin America," said Mo Garfinkle, a veteran airline industry consultant. "There's a more fundamental problem here. We need to cut capacity" meaning both aging aircraft and flights, Garfinkle said.

The United-US Airways talks, which had been under way at a more casual pace for months, revived in earnest at the end of April, after Continental Airlines decided not to pursue a deal with United. Continental board members chose to withdraw from discussions April 28, saying that it did not think an agreement was in Continental's best interests.

At that time, people with knowledge of the discussions said United and US Airways hoped to reach an agreement within a month, so it could be considered by the Justice Department before a new president takes office.

One of the key obstacles to the deal appeared to be the complexity of putting together union contracts covering each airline's employees, these people said.

Sorting out which union would represent workers, as well as those workers' seniority, could have taken months or years, delaying the savings that might have resulted from the combination.

US Airways has still not reached agreements with all of its unions after its merger in 2005 with America West Airlines. United's pilots and flight attendants were adamantly opposed to a deal with US Airways.

Both Tilton and US Airways' chief executive, J. Douglas Parker, frequently spoke out in favor of industry consolidation, saying it was needed to assure the long-term health of the industry, which has been pummeled by an 82.5 percent increase in prices for jet fuel over the past year.

However, Tilton and United directors raised questions in recent days over the difficulty of putting such an agreement together, the people with knowledge of the situation said.

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