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AmWest, US Airways to merge

Of course this is by no means final, but it looks like we’re moving ahead on this. A couple people have expressed concern for me and my job… my mama wanted to know if I’d have to move to DC. Right now I’m not worried about my job, or needing to relocate anytime soon. While the merger plan is official, the current plan doesn’t have the airline fully integrating until 2008, and that’s if all the powers that be approve everything that needs approving.

AmWest, US Airways to merge
Dawn Gilbertson
The Arizona
Republic
May. 19, 2005 02:20 PM

After weeks of nonstop speculation about their hush-hush marriage talks, America West Airlines and US Airways became officially engaged today, seeking to create the nation’s fifth largest airline.

The two major carriers this afternoon said they plan to merge in a complex, $1.5 billion deal that will have the new airline based in Tempe but flying under the US Airways banner. America West Chairman and CEO Doug Parker will run the airline, which will have hubs on both coasts and a route map spanning the world.

No details were provided on the impact on employees or flights at either airline, but the companies said the airlines will operate separately for two to three years.

The backers of the deal many thought would never get off the ground financially include the parent of Air Canada, Boston-based investment firm PAR Capital Management, regional carrier Air Wisconsin and industry players Airbus and General Electric.

In their first public comments about the motivation for the deal, Parker and US Airways CEO Bruce Lakefield said the deal will create the first full-service nationwide low-cost, low-fare airline.

“Through this combination we are seizing the opportunity to strengthen our business rather than waiting for the industry environment to improve,” said the written statement.

More details are expected in a media conference call and news conference at the Airline’s Tempe headquarters. America West’s stock, which was beaten up after word of the merger talks leaked, rose sharply today in expectation of announcement. The stock closed at $4.81, up 8.6 percent from Wednesday’s close. After hours trading was halted pending the news.

For Phoenix, the merger would mean a national, homegrown brand falls off an
already short list of marquee names in business. But the area gains a much larger corporate headquarters, in terms of prestige, total employees and other measures. Based on last year’s revenue of $9.4 billion for the combined company, the new US Airways would rank as Arizona’s second-largest publicly company, after Fortune 500 electronics distributor Avnet Inc.

The deal is by no means done. There are a host of approvals to get, including the federal Air Transportation Stabilization Board, which loaned both airlines money after Sept. 11 and is still owed nearly $1 billion from the two; U.S. Airways’ bankruptcy judge; federal regulators and shareholders.

There was skepticism from Wall Street, competitors and others as soon as word of the merger talks leaked last month, and the scrutiny is only expected to intensify now that some specifics are on the table. Analysts worry about the wisdom of combining two financially weak carriers during an industry crisis that is expected to produce $5 billion in losses this year.

The president of Southwest Airlines has said the CEOs of the two airlines must be on drugs to contemplate a merger in this horrible airline environment.

David Neeleman, CEO of discounter JetBlue Airways, the only other profitable airline besides Southwest, joked at an aviation conference last month in Phoenix that Parker has started drinking his own Kool-Aid. That was a reference to Parker’s repeated comments over the past year that the industry was ripe for consolidation.

The merger will form the centerpice of US Airways’ reorganization plan. The airline filed for Chapter 11 bankruptcy protection last fall, a year after it emerged from its first Chapter 11 reorganization.

The combined company has nearly 38,000 employees, though it’s unlikely the count will stay that high due to duplicate headquarters staff and the plan for fewer aircraft than the 419 jets they operate now in total.

Many observers expect the thorniest issue to be integrating the carrier’s union workforces. Seniority rules at unions, and US Airways workers have much more than those at significantly younger America West. At America West’s annual shareholders meeting Tuesday, America West union representatives grilled Parker about whether their jobs will be safe in a merger. Parker has said only that he wouldn’t do a deal that jeopardize the he hard work America West’s employees.

By any measure, America West is combining with a much larger carrier. US Airways’
sales last year were triple America West’s, at $7.1 billion. The two rank 7th and 8th in passenger traffic, but the gap is wide: 40.5 million revenue passenger miles versus 23.3 million. They rank sixth and eighth in passenger boardings, but US Airway’s passenger count is double America West’s, at 42 million.

Reach the reporter at dawn.gilbertson@arizonarepublic.com or 602-444-8617

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