=20 ---------------------------------------------------------------------- This article was sent to you by someone who found it on SFGate. The original article can be found on SFGate.com here: http://www.sfgate.com/cgi-bin/article.cgi?file=3D/c/a/2005/05/20/BUGTTCS0HS= 14.DTL --------------------------------------------------------------------- Friday, May 20, 2005 (SF Chronicle) US Airways, America West agree to merge/$1.5 billion deal will create natio= n's 5th-largest airline Micheline Maynard, New York Times US Airways and America West Airlines said Thursday that they planned to merge in a $1.5 billion deal that will create the nation's fifth-largest airline and one of the biggest low-fare carriers. The deal, which still faces major hurdles, is the first significant merg= er in the industry in four years and the first since the September 2001 terrorist attacks knocked the industry off its feet. It may mark the start of a wave of industry consolidation. Together, US Airways, the nation's seventh-largest airline, and America West, the eighth-largest, would have $10 billion in annual revenue, 361 planes and 44,100 employees but little overlap in routes, the two airlines said. US Airways is concentrated on the East Coast and America West on the West Coast. The pair plan to operate under the US Airways name but be based at Ameri= ca West's headquarters in Tempe, Ariz. The new US Airways would rank ahead of Continental Airlines and Southwest Airlines when measured by available seat miles. Unlike past mergers, however, this deal would keep the structures of both airlines essentially intact. The airlines said in a joint statement that they would coordinate their schedules and eventually merge their frequent-flier programs, and that members of their plans would keep their miles. Once the deal is concluded, which the companies said could be this fall, America West's red, white and green planes would be painted in US Airways' colors, dark blue, white and red. A combined airline would be in "a position of strength and future growth that neither of us could have achieved on our own," said Douglas Parker, the chief executive at America West, who will run the combined airline as chief executive and chairman. Bruce Lakefield, the chief executive at US Airways, who would become vice chairman, said the merger would "bring more choices for customers." The two airlines, which held their first discussions of a merger about a year ago, have been in serious talks since last month. They announced the merger after a meeting by America West's board in Phoenix on Thursday. The board of US Airways approved the arrangement on Wednesday. This is the first major deal in the domestic airline industry since American Airlines bought the assets of Trans World Airways in 2001. That deal made American the industry's biggest carrier. Five years ago, US Airways agreed to be acquired by United Airlines, but it dropped that deal in 2001 after the Justice Department moved to challenge it in court on antitrust grounds. The deal between America West and US Airways would be backed by $350 million in new equity from four investors. They include ACE Aviation Holdings, the parent of Air Canada, which is investing $75 million; PAR Investment Partners, a Boston investment group, which is investing $100 million; and Peninsula Investment Partners, a Virginia firm, which is investing $50 million. Air Wisconsin, which previously announced a $125 million investment in US Airways, will also participate. The deal includes a $250 million loan from Airbus, the European aircraft manufacturer. In return, the combined airline would become the first customer for the new Airbus A350 medium-range plane, with the first arriving in 2011. The companies said the Retirement Systems of Alabama, which has been the major investor in US Airways, could invest in the new airline. But David G. Bronner, the chief executive of the pension fund and the current chairman of US Airways, has not been given a seat on the two companies' new 13-member board. Thursday, Parker said during a conference call with reporters that there would be some job reductions after the merger is completed but that the two airlines did not expect "major furloughs." Obstacles to the deal remain, however. The deal requires approval by a federal loan board, which granted loan guarantees to both US Airways and America West after the Sept. 11 attacks. Together, the airlines owe more than $1 billion on their federal loans. The deal also requires approval by a federal bankruptcy court in Alexandria, Va. US Airways has been operating under bankruptcy protection since September, its second Chapter 11 bankruptcy in three years. Given that, the deal could generate other offers for the assets of US Airways, which include its East Coast shuttle operating from New York to Boston and Washington. If it goes through, however, the deal would lead to a new national airli= ne promising low fares. It would have primary hubs in Phoenix, Philadelphia and Charlotte, N.C., and secondary hubs in Las Vegas and Pittsburgh. For the past few years, industry executives, including Parker, have contended that the industry was sorely in need of consolidation so it could eliminate excess seats. But the deal in reality would do little to reduce service, except to remove one name from airport concourses, analysts said. Industry executives said financial problems at both airlines hurt the deal's chances. Earlier this month, a senior vice president at Delta Air Lines, James Whitehurst, likened the pair to sinking ocean liners. When tied together, Whitehurst said, "the combined ship sinks faster." ------------------------= ---------------------------------------------- Copyright 2005 SF Chronicle