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Old April 30th, 2005, 03:38 PM   #1
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How would this work? I think it would be god for Air Canada to expand its international routes, and have a greater feeder, but how would America West and US Airways would from this? Everything would have to be routed through Vancouver or Toronto... I don't think unless Open Skies is more open that this makes much sense. Why Air Canada anyway?
Air Canada has AmWest, US Airways merger ties

Dawn Gilbertson
The Arizona Republic
Apr. 30, 2005 12:00 AM
Another airline has been linked to a possible America West merger with US Airways.

The latest speculation focuses on Air Canada. The Toronto Star this week quoted a "Wall Street source" as saying the carrier may be in talks with both US Airways and America West Airlines in a deal that may see Air Canada take on international traffic while a combined US Airways-America West handles domestic U.S. traffic. It did not mention how such a deal would be structured.

Air Canada's chairman didn't rule out a possible merger for the airline on a conference call, the newspaper reported, but he seemed to be commenting on its role in industry consolidation in general. The discussion was a footnote in a story about the airline's $6 billion order for Boeing jets this week.

"Consolidation in the North American industry is inevitable," said Robert Milton, chairman of the airline's parent company. "To the extent Air Canada is or isn't part of that is yet to be determined."

The airlines are not strangers to each other.

Air Canada and US Airways are both members of the same airline alliance, the Star Alliance, a network of airlines that feed passengers to each other globally. They also have both used Seabury Group for investment banking.

On the America West side there's a Texas Pacific Group connection. The private equity firm brought America West out of bankruptcy a decade ago and, together with Air Canada, invested in Continental Airlines to bring it out of bankruptcy in 1993.

TPG still owns a controlling interest in America West and is seen as a key player in any merger. The extent of its role is unclear.

Rick Schifter, managing partner of TPG, wouldn't comment at an airline conference in Phoenix this week. But his overall comments on industry consolidation seemed to suggest that the airline is lukewarm on any further investments at this point.

He said the industry is "still sucking wind" because the success of low-cost carriers have brought about dramatic change in the rest of the industry.

"That gives us some pause as we look at the industry today," he said.

He also said the firm, a legendary bargain hunter, doesn't see a lot of steals out there because there is so much capital chasing few deals. That drives prices up.

He said they continue to keep an eye on the industry, "but we're fairly cautious at this stage."
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Old April 30th, 2005, 03:44 PM   #2
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Air Canada is aggressively expanding its Asian and South American routes. AC can draw passengers to its Vancouver and Toronto hubs for its services to Hong Kong, China, and India. However, doing the same for South American routes will be more difficult. US carriers have extensive connections to the continent, so the catchment area for AC will be quite limited to cities near Toronto and Vancouver that are not as readily connected to a large US hub.
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Old April 30th, 2005, 08:33 PM   #3
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Between all three airlines, only America West is profitable. US Airways and Air Canada, I believe, are not. US Airways also has a decent hub in Philadelphia that serves most major European cities and is probably the only profitable part of the airline. It's the domestic flights that are killing US Airways and other airlines because they are so unefficient in terms of flying time to ground time. Domestic flights use the most fuel per mile flown for the same reason.

But, the biggest reason why this merger would never occur is because none of these airlines can operate in the other country, beyond just picking up and dropping off passengers. None can charge passengers to fly between two cities in the other country, under the present aviation rules and it would take months, if not years to hammer out a true "open skies" agreement.
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Old May 1st, 2005, 06:30 PM   #4
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Air Canada may be part of AmWest, US Airways talks
By John Yantis, [East Valley] Tribune

Air Canada emerged Thursday as another potential player in merger talks between Tempe-based America West Airlines and US Airways.
The Toronto Star quoted a Wall Street source saying the Canadian airline may be in talks with both U.S. Airways and America West about a deal that may see Air Canada take additional international traffic while the potential U.S. Airways-America West entity would handle domestic U.S. traffic.

Robert Milton, chairman of ACE Aviation Holdings, the Montreal parent company of Air Canada, didn’t dismiss speculation his airline may be involved in a merger, possibly with America West, the newspaper said.

"Consolidation in the North American industry is inevitable," Milton told the paper. "To the extent Air Canada is or isn’t part of that is yet to be determined."

The Montreal Gazette also mentioned a potential merger between Air Canada and America West.

An America West spokesman would not confirm or deny talks with Air Canada are under way.

Some airline industry analysts said a deal among the trio of carriers would be intriguing. Michael Boyd, of the Boyd Aviation Group, said the combination could work well.

"For Air Canada, the big markets up there are being cherry-picked by WestJet and other low cost carriers," he said. "Their strength is their international traffic. There’s no question they could do a heck of a job. You go through U.S. Customs in Canada so that means you could funnel a lot of people to Toronto or Vancouver or even Calgary, run them internationally, and when they come back, they could clear Customs right there in Toronto, and then they could go anywhere in the United States at that point."

U.S. Airways flies internationally to Europe, Canada, the Caribbean and Latin America. America West flies internationally to Mexico, Canada and Costa Rica.

"I don’t know where US Air fits into this thing except as maybe somebody trying to save a mother ship, but certainly America West is a strong player, and the Air Canada thing is very, very compelling," Boyd said.

Ray Neidl of Calyon Securities said federal law prohibits Air Canada from flying international flights from the United States.

"But if they could get permission to code share, then the America West-US Air entity, if there was one, could operate international flights through the U.S. using the Air Canada code, or conversely, US Air and America West could stay domestic pretty much and have more feed (traffic) through Canada, through Montreal or Toronto from overseas through Canada into the U.S.," Neidl said.

Code sharing refers to a practice where a flight operated by an airline is jointly marketed as a flight for one or more other airlines.
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Old May 1st, 2005, 06:33 PM   #5
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Air Canada buys 32 Boeings
$6-billion (U.S.) plane order is based on fuel economy, carrier's CEO says

The Gazette
April 26, 2005

Air Canada yesterday announced a massive $6-billion (U.S.) seven-year fleet modernization program, choosing Boeing Co.'s latest long-range wide-bodied aircraft over rival Airbus's airliners.

Air Canada, fresh from its parent's recent $792-million financing, lodged firm orders for 18 Boeing 777s with a total list price of up to $4.4 billion U.S., and for 14 Boeing 787 Dreamliners worth up to $1.68 billion U.S.

The order is a clear swing to Boeing from Europe's Airbus, which last year won global leadership in deliveries.

The cost will vary according to equipment and the aircraft's range. List prices are discounted by 20 per cent or more, analysts said, pushing the total acquisition cost well below $5 billion U.S.

"The Boeing aircraft were chosen after exhaustive economic and technical studies," said Robert Milton, chief executive of parent ACE Aviation Holdings Inc.

"High fuel costs dramatically swung our decision to the Boeing aircraft. Also their seat capacity and range ideally fit our routes to Europe and Asia."

He also pointed to the 787's 20 per cent weight saving over the Boeing 767 and lower maintenance costs, due mainly to the widespread use of carbon fibres and new-generation engines.

Air Canada will take a leadership position in North America with the newest and most fuel-efficient twin-engine long-haul planes, he said.

The first three 777s will be delivered in 2006 and the first 10 787s in 2010. General Electric Co. will fight Rolls-Royce Plc to make the 787 engines.

The 787's operating cost will be 30 per cent less than the 767's at present fuel costs, which have risen 56 per cent in the past year.

The new aircraft, with passenger capacity of 200 to 300, will be financed by the U.S. Import-Export Bank at attractive rates, Milton said, backstopped by Boeing itself. "We've great esteem for the Airbus A350, but it's bigger than what we wanted as international routes fragment further."

The A350, developed from the wide-bodied A330, is Airbus's reply to Boeing's 787 Dreamliner. But Air Canada will continue to fly Airbus A319 and 320s, its narrow-bodied short haul aircraft, while gradually replacing its A330s and the four-engine A340s with the 777s and 787s. Its Airbus fleet is leased; the 767s are owned outright.

Air Canada wanted to take delivery of the three 777s next year to capture the upsurge in Asian and Chinese traffic. The others will follow rapidly.

It is also taking options on 18 more 777s and 46 more 787s worth a further $12 billion U.S. at list price. It pays an undisclosed fee for the flexibilty to take more new aircraft if markets expand as it hopes or delay deliveries.

Asked how the Boeing program would fare if Air Canada merged with a U.S. airline like America West, Milton said: "For sure, you'll see some industry consolidation but Air Canada's role has yet to be determined."

Despite the financial difficulties of the big U.S. "legacy" airlines, analysts said, global traffic is returning to normal after the 9/11 terrorist attacks, and some airlines are lining up for delivery slots for fuel-efficient aircraft.

"Air Canada can use the Boeing aircraft on domestic and international flights, short and long haul," said Jacques Kavafian, analyst with Research Capital Corp. "They can expand internationally while eventually selling their 767s."

Air Canada's order came a week after the Canada-China air services pact was signed, allowing fast growth in passenger and freight traffic between the two countries. Three more Chinese cities can be served directly, besides Beijing and Shanghai.

"This long-term acquisition program will eventually focus Air Canada's equipment on Boeing, Airbus, Embraer and Bombardier," said Frederic Bastien, analyst with Raymond James Research.

"International markets are going fine, but the risks of high fuel prices, the Canadian dollar and rugged competition remain."

ACE's share-price dipped 50 cents to $35.30 yesterday in Toronto. Most analysts have rated the stock a strong buy since the company exited court protection last September.
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Old May 1st, 2005, 07:43 PM   #6
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@Samsonyuen: I've read these articles, but I just don't see anything more than America West joining Air Canada and US Airways in the Star Alliance. In addition, with US Airways under bankruptcy protection, everything they do that is of any significance has to be reviewed and given the "green light" by the bankruptcy judge.
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Old May 1st, 2005, 07:49 PM   #7
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Originally Posted by Nick in Atlanta
Between all three airlines, only America West is profitable. US Airways and Air Canada, I believe, are not. US Airways also has a decent hub in Philadelphia that serves most major European cities and is probably the only profitable part of the airline. It's the domestic flights that are killing US Airways and other airlines because they are so unefficient in terms of flying time to ground time. Domestic flights use the most fuel per mile flown for the same reason.

But, the biggest reason why this merger would never occur is because none of these airlines can operate in the other country, beyond just picking up and dropping off passengers. None can charge passengers to fly between two cities in the other country, under the present aviation rules and it would take months, if not years to hammer out a true "open skies" agreement.
I blv AC finally made a slight profit last quarter. The emphasis is slight.
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Old May 16th, 2005, 11:25 AM   #8
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US Airways Closes In on Merger Deal
Talks With America West Are Ongoing to Secure Funding
By Keith L. Alexander
Washington Post Staff Writer
Monday, May 16, 2005; Page A02

US Airways Group Inc. and America West Holdings Corp. could announce a merger agreement as early as this week, sources familiar with the deal said yesterday.

US Airways and America West, which began talking about a deal more than a year ago, are in the final stages of their plans to merge to become one of the nation's largest low-cost carriers. A person familiar with the discussions, who requested anonymity because the talks are ongoing, said both sides continue to firm up their plans and the talks remained "fluid."

If the two airlines reach a merger agreement, the combined airline is likely to keep the name US Airways, which is a more well-known brand across the count[r]y.

To reach agreement on a deal, US Airways and America West were trying to raise $400 million to $700 million, said a source, who speaking on condition of anonymity because of the nature of the talks.

The airlines were in talks with Air Canada about investing in the deal. Air Canada, which is strong internationally, would be expected to handle the international flights, while the US Airways and America West would handle the domestic flights.

The Wall Street Journal yesterday reported on its Web site that US Airways and America West were also in talks with Airbus for the aircraft company to invest $250 million in the combined airline in return for an order of about 20 new Airbus A350 jets. The order would give Airbus SAS, the world's leading plane builder, its first North American customer for the A350 jetliner, the newspaper said. Airbus, which is based in France, is owned by a consortium of European governments.

America West is trying to avoid investing billions of dollars in a takeover of US Airways. Instead, the two airlines are trying to form a strategic merger, with a possible holding company serving as the owner of the combined airline.

Arlington-based US Airways is the nation's seventh-largest carrier. The airline has been struggling to transform itself into a hybrid carrier with budget-airline costs while still offering traditional airline amenities, such as first-class cabins and international routes.

US Airways, which has 28,000 workers, has slashed more than $1 billion in labor costs since filing for Chapter 11 bankruptcy protection in September, but its costs are still higher than other budget airlines, including America West, Southwest Airlines Co. and JetBlue Airways Corp.

US Airways reported a loss of $611 million in 2004 and revenue of $7.12 billion. The recent Chapter 11 filing was its second in less than two years.

An investment partnership could result in increased feeder traffic between the two airlines. America West, the nation's eighth-largest carrier, is strong in Phoenix and Las Vegas and could benefit by securing passenger feeder lines from the East, where US Airways is strongest and has hub airports in Philadelphia and Charlotte.

America West, founded in 1983, has 13,000 employees, and primarily serves destinations in the western United States. During the past three years the airline has transformed itself into a low-cost carrier and it was one of the first airlines to implement buy-on-board meal service.
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Old May 17th, 2005, 06:52 AM   #9
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If this goes through...it will be good news for Charlotte...since it will solidify it's hub status.
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Old May 17th, 2005, 07:15 AM   #10
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What the hell would they call that monster after the merger?
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Old May 17th, 2005, 10:58 AM   #11
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America West would probably keep the US Airways name. It's more well-known in the East, and not as regional sounding.
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Old May 17th, 2005, 12:46 PM   #12
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Air Canada matchmaker to U.S. airline merger?
Parent ACE considers investing in US Airways-America West marriage
Tuesday, May 17, 2005 Updated at 5:07 AM EDT
From Tuesday's Globe and Mail

An Air Canada investment in a combined US Airways-America West entity would complement its own international expansion plans, industry sources said yesterday, while also driving additional U.S. passenger traffic and generating maintenance contracts.

ACE Aviation Holdings Inc., parent company of Montreal-based Air Canada, is weighing the risks and rewards of wading deeper into the cutthroat U.S. market, mulling over whether to invest at least $125-million to assist merger talks between the two U.S. airlines, sources said.

In return for injecting equity, Air Canada would be able to position itself to better tap into the regional U.S. market at airports such as US Airways hubs in Charlotte, N.C., Pittsburgh and Philadelphia, and America West hubs in Phoenix and Las Vegas.

Air Canada already provides transborder service to nearly 50 U.S. destinations from Canada. But in what's known in aviation lingo as a "sixth freedom," Air Canada could step up its marketing of overseas flights from regional U.S. cities to Asia via Vancouver and to Europe and the Middle East via Toronto.

Sources said Air Canada wants to promote its partnership in the Star Alliance, which currently includes US Airways but not America West.

It wouldn't be an easy and straight-forward transition, however, since United Airlines Inc. of Chicago is also a member of the Star Alliance. United has a close relationship with Air Canada at more than 40 U.S. destinations.

That Air Canada-United link includes co-operation at airports in Chicago, Washington Dulles, Denver and Phoenix. But Air Canada could still get a US Airways-America West boost through so-called code-sharing arrangements that allow passengers to book on one airline while connecting on a rival carrier for part of a trip.

While Canada's flag carrier declined comment yesterday, insolvent US Airways' financial consultant, Seabury Group, knows all three airlines well. Seabury's founding partner and chief executive officer, John Luth, helped advise Air Canada on its emergence from bankruptcy protection last year, and he played an instrumental role in a debt/leasing revamping at America West in 2002.

Mr. Luth has also twice headed Seabury's restructuring team at US Airways. Last September, US Airways filed for protection under Chapter 11 of the U.S. Bankruptcy Code, marking the airline's second trip to bankruptcy court since 2002. In March, 2003, after slashing operating costs, it emerged from the first filing, only to slip back into financial trouble.

US Airways Group Inc., based in Arlington, Va., is the seventh-largest carrier in the United States, as measured by passenger traffic. America West Airlines Inc., based in Tempe, Ariz., ranks No. 8.

US Airways' strength on eastern U.S. routes would be combined with America West's extensive network in the West.

Cameron Doerksen, an analyst with Dlouhy Merchant Group Inc., said that if Air Canada ends up playing a supporting role in a U.S. deal, it could bolster the Canadian carrier's technical services division, which does aircraft maintenance internally and for outside parties.

"US Airways and America West would be two potential customers for Air Canada Technical Services," said Mr. Doerksen, noting that Air Canada has developed an international reputation for maintaining Airbus and Boeing models.

Air Canada could help maintain Airbus A319s and A320s, Boeing 757s and 767s and also Bombardier regional jets.

In late March, Air Canada secured a five-year, $300-million (U.S.) contract with Atlanta-based Delta Air Lines Inc. for servicing of more than 200 Boeings.

Robert Fay, an analyst with Canaccord Capital Inc., said another possibility is that Air Canada could administer or acquire the U.S. frequent-flier programs of the US Airways-America West entity, enhancing its Aeroplan loyalty division.

ACE has said that it may sell off minority stakes in its Aeroplan and maintenance units.

But TD Newcrest analyst Brian Morrison cautioned that ACE will be carefully examining the pros and cons of any potential investment south of the border, where U.S. legacy carriers such as US Airways "remain in financial disarray."

Mr. Morrison said an equity infusion by ACE would be high-risk, given the fierce competition for passengers. While there is speculation that an integrated US Airways-America West deal could be reached this week, he played down the chances of ACE pumping money in, at least in the short term.

Another industry observer said other financiers in the U.S. airline merger talks could include Airbus and hedge funds, but Air Canada has a variety options for its next major strategic move. Whatever happens, Air Canada would still be prevented from flying from one U.S. city to another U.S. city.
Merger rumors flying in Ariz.
Some at America West worry about US Airways deal
Tuesday, May 17, 2005
By Dan Fitzpatrick, Pittsburgh Post-Gazette

TEMPE, Ariz. -- In the hometown of America West Airlines, the temperature is 100 degrees, and heated questions are mounting about a possible partnership with East Coast carrier US Airways.

Will it happen, and when will it be announced? Who will put up the money to make it work? Where would the surviving carrier be based? What would it be called? And what will happen to employees?

Many will be looking for answers today, at America West's annual shareholders meeting in downtown Tempe.

But America West, bracing for a crowd larger than its 250-person conference room is equipped to accommodate, is not promising to be all that forthcoming. It has warned that Chief Executive Officer Doug Parker and other executives will not be available for media questions -- a sign that a merger announcement will not happen today, as some thought it would.

There is speculation that the official word may come later this week, perhaps on Thursday, but the two airlines are still not confirming reports about the inevitability of an announcement or about the emergence of several investors willing to provide money to support the new venture. The combined airline would become the nation's sixth-largest carrier.

Nor are the carriers confirming reports that the name of the new company would be US Airways, considered a more national name than America West, or that the headquarters would be here, in Tempe, where the cost of doing business is cheaper than Washington, D.C., US Airways' home.

The airlines are hoping to raise $700 million in financing to allow US Airways to exit Chapter 11 for the second time in as many years. US Airways already has commitments for as much as $235 million from commuter carrier Republic Airways, and other possible players include:

Airbus. The aircraft maker could lend the new carrier $250 million in exchange for a promise to buy 20 of the company's A350 jets. It would be an unusual arrangement, admitted Tarentum-based airline analyst Bill Lauer, calling it a "bribe" in exchange for an order.

Air Canada. The once-bankrupt carrier could invest as much as $150 million. A Wall Street source confirmed Air Canada's interest and said the carrier is interested in spinning off its maintenance facilities as a stand-alone company and becoming the combined maintenance provider to America West and US Airways.

PAR Capital Management, the Boston-based equity firm, could invest $50 million to $100 million, according to a Wall Street source. The final decision on funding will be made by PAR's Ed Shapiro.

No region of the country is more anxiously awaiting details of the proposed merger than the Phoenix area, where America West employs more than 10,000 people. At the Sky Harbor International Airport, its orange and teal-colored planes account for about 50 percent of the traffic.

Like US Airways, America West has been through bankruptcy and survived the post 9/11 period with help from the federal government.

It has also recovered from its problems, posting a profit in the recently ended first quarter, although analysts argue that its cash position is still poor. US Airways and most other major carriers lost money in the first quarter.

Given all they have been through the last several years, America West employees are unsure of what may happen to them as a result of a US Airways deal.

Asked about it yesterday on a flight from Pittsburgh to Phoenix, a flight attendant with the name "Nancy" scrawled on her apron shrugged her shoulders and said, "We are waiting like everybody else."

If the two carriers merge, they may shed planes and employees. Many pilots at America West are worried about that outcome, given their relative youth when compared to their counterparts at US Airways, a much-older airline.

A pilot with 20 years experience at America West stopped in the Phoenix airport yesterday and said he expects a "legal battle" between the two pilot groups over issues of seniority and pay and jobs.

On top of that, he said, many pilots worry about taking on a such a troubled carrier as US Airways. "We feel like US Airways is on its last leg," he said.
Merger called final chance
By Thomas Olson
Tuesday, May 17, 2005

If US Airways can't forge a deal to merge with America West Airlines, bankrupt US Airways will find it very hard to keep operating indefinitely, analysts said Monday.
"If the merger doesn't come about, the feeling is that US Airways is done for," said Mike Boyd, head of The Boyd Group, an airline consultant in Evergreen, Colo. "I don't know where their options are right now, other than this merger."

A merger announcement could come as early as today, when America West is holding its annual shareholders meeting. But more likely, a many-sided deal won't be worked out for days, if not weeks, say most analysts.

America West, based in Phoenix, is the nation's eighth-largest airline, while US Airways is seventh-largest. A merger, which reportedly would take the US Airways name, would become the nation's sixth-largest airline. It would displace Southwest Airlines, based on total passenger miles flown.

The talks have reached an advanced, and more complex, stage in recent days. The merger partners are pursuing several side deals to make their combination work, say published reports.

The intended financing would include a $250 million loan from jet maker Airbus, at least $100 million in equity funding from Air Canada's parent, and $125 million in equity funding from PAR Capital Management, a Boston-based hedge fund.

"This is a 'bet-the-company proposition," said local analyst William Lauer, "which is not meant as a criticism against US Airways management. I don't think they have any choice."

Boyd notes that US Airways revenue is pinched hard by Southwest, AirTran and other low-fare competition in its key East Coast markets. Plus, jet fuel costs are roughly double levels of a year ago.

US Airways obtained $1 billion in annual labor concessions in 2002, and another $1.1 billion after emerging from its first bankruptcy in March 2003. But more labor cuts would not fly, say experts.

"If they go back to labor again, they might as well shut the airline down," said Marick Masters, a University of Pittsburgh business professor. "That would precipitate a strike, and that would accelerate US Airways' demise."

Airbus' participation in merger financing depends on the merged airline's ordering about 20 new A350 jetliners. The European manufacturer expects to start delivering the long-range aircraft with 245 to 285 seats in 2010.

"If you have to go that far out for funding, I don't know how attractive the deal really is," said Lauer, chairman of a money-management firm in Tarentum.

A US Airways/America West merger would be the core of US Airways' reorganization plan, which is supposed to be completed by the end of May. So the merger plan would have to be approved by several parties. They include the bankruptcy court in Alexandria, Va., at least half the airline's creditors, and the Air Transportation Stabilization Board.

The federal panel backed $900 million in US Airways loans and requires the airline to set aside cash to repay the more than $700 million loan balance. Lauer said cash collateral is reaching "a danger zone" -- $515 million -- as of March 31. At a certain point in the cash drain, the federal panel would force US Airways into liquidation, he said.

Alternatively, the airline could raise cash by selling assets. But even its prized East Coast shuttle is "marginally profitable," said Boyd, and coveted landing slots at key airports are already highly leveraged, he said.
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Old May 18th, 2005, 12:59 AM   #13
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The only possible connecting between US Airways, America West and Air Canada is US Airways and America West merging under the US Airways name. The odds of this are not very high. There's the pilot seniority and the truly dire condition of US Airway's finances versus the relatively stable finances of America West.

Regarding Air Canada, it seems that they really only want to invest some money in a US Airways/America West merger, so that this unlikely pairing will send some European bound international traffic to Toronto and some Asian bound traffic to Vancouver, where Air Canada will carry the passengers overseas on their own planes.

This seems unlikely, especially if you assume that one of US Airways only profitable segment of their business is flying local and hub passengers from Philadelphia to the many European cities it has established flights to in the last ten years.

Last edited by Nick in Atlanta; May 19th, 2005 at 01:41 AM. Reason: Freaking freudian slips
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Old May 19th, 2005, 12:26 AM   #14
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New name for a new airline?
Merger could start airline name game
John Stearns
The Arizona Republic
May. 18, 2005 12:00 AM
Talk about a name that carries some baggage.

US Airways, whose name is likely to replace that of America West Airlines if the two announce their expected merger Thursday, is the same carrier linked to those pictures over Christmas of mountains of displaced luggage.

The airline blamed too many workers calling in sick. Employee unions blamed poor airline management for separating thousands of people from their clothes and presents.

Keeping US Airways' name is a bad idea, believes a marketing consultant back East, where the airline is better known than its merger mate.

"My vote would be rebranding" the merged airline with a new name, said Jack Trout, president of Old Greenwich, Conn.-based Trout & Partners Ltd. "Why bring along the baggage? US Airways has got a terrible reputation."

Rebranding the merged airline would be costly. It would require, eventually, repainting planes, redoing employee uniforms and changing airline signs at airports. There also would be the cost for making consumers nationwide familiar with the new name through advertising and promotions.

Using either the America West or US Airways name reduces some of the change-over costs and the need to establish a new brand from scratch.

While many are lukewarm to the US Airways name, America West doesn't have widespread support, either.

Many confuse America West with American Airlines, Trout said. A new name would provide a platform for a fresh start for the product in consumers' minds, he said. Trout would recommend something like "East-West Airlines," a carrier that can brag it's good in the East and the West.

While America West might be familiar to people in Phoenix and Las Vegas, where it has a huge presence, marketing and branding experts say the brand's connotations among customers matter most. If a new name is revealed, the product must meet customers' expectations, they say.

To Stephen Brown, professor of marketing and executive director of the Center for Services Leadership at Arizona State University, a brand goes beyond a name or logo to: "What do customers think about when they think about that company?"

While US Airways is more well known domestically and globally, it doesn't have a great brand reputation, he said.

It is easier to retain a brand than create a new one, Brown acknowledged. "(But) the question is: Is US Airways that strong of a brand to retain?" he said.

"(But) in this market climate, it would be expensive for a new merged company to mount and build a new brand."

Financially, with the deal already getting mixed reaction, "Wall Street would just annihilate them if they go on this multimillion-dollar branding effort," Brown said.

At America West's annual shareholders meeting in Tempe on Tuesday, company pilot Les Odgers expressed concerns about calling the combined airline US Airways. He said he hoped the two airlines would conduct a study to determine which name gives travelers the "warm fuzzies."

David Gaglione, associate director-naming for San Francisco-based Landor Associates, said US Airways has better recognition, but cautioned that could be positive or negative. If there's a liability with the name, it might be an opportunity to tell a different story through a new name, he said.

He would evaluate whether one name has significant equity in the marketplace or significant liability.

Steve Moore, president and chief executive officer of the Greater Phoenix Convention & Visitors Authority, left branding questions to industry experts. His focus in the new airline: The amount of new markets this will open up for Phoenix for inbound traffic.

"With the expanded Phoenix Civic Plaza, anything that improves Phoenix's ability to solicit conventions with greater (flight) connectivity has great appeal to us," Moore said.
Workers press AmWest over possible merger
Employees question CEO on job security
Dawn Gilbertson
The Arizona Republic
May. 18, 2005 12:00 AM
America West Airlines Chief Executive Officer Doug Parker never wavered from his no-comment-on-the-merger mode at the company's annual shareholders meeting Tuesday, but the talks under way with US Airways still stole the show.

A parade of employee union representatives used the question-and-answer portion of the annual ritual to express their concerns about a potential merger and to urge Parker to keep their interests and hard work in mind.

Debra Ewing, an America West gate agent, told Parker seniority issues are among the big worries. There is a big gap in seniority among the two airlines' workers because US Airways has been in business decades longer than America West, which didn't debut until 1983.

"There's a lot of us that are very concerned about that," said Ewing, who has been with America West for five years and was on the organizing committee that brought in the Teamsters to represent customer service representatives last year. Customer service representatives are America West's largest employee group, at 3,200.

Jennifer Tan, a reservation agent in Reno who also was part of the Teamster efforts, asked Parker whether the company might outsource its reservation centers in Phoenix and Reno, a move US Airways has taken with some of it centers. Parker said America West has no such intentions and praised the "fantastic job" the reservation agents do.

America West mechanic Randy Klinckhardt posed his concerns a different way. He noted that media reports have said Parker will run the combined airline if a deal comes to pass. He asked only that Parker give "the same consideration" for the airline's 850 mechanics and related maintenance workers when it comes to keeping their jobs.

Parker acknowledged the employees' worries and said he knows it's "impossible to say quit worrying."

He suggested that if they stay focused on their jobs during this time of uncertainty, "everything's going to work out fine."

The employees had a supportive voice in the crowd in longtime America West shareholder Seymour Licht.

Licht, a retired Scottsdale engineer who has brashly tangled with America West management and other public company executives in the past, badgered Parker to reveal details of the merger talks.

He said he was worried for the employees of America West, citing heavy TWA job losses after the St. Louis airline merged with American Airlines.

"I want to know what's going on with this merger!" he screamed at Parker.

At one point Licht loudly accused Parker of not being able to look employees in the eye and tell them what's really going to happen to their jobs if the two airlines merge.

Parker, who until that point had gamely and sometimes humorously handled the attack, issued a sharp rebuke to Licht.

"I'm not going to let you stand here in front of my employees" and tell them what he can or can't do, Parker said.

That quickly ended the exchange.

The lack of merger details has been a big frustration for many of America West's 14,000 employees.

America West hasn't said a word publicly since confirming the talks April 22. When the airline pursued bankrupt ATA Airlines late last year, the company was more open. That involved a bankruptcy auction, though, where this is a private discussion to date.

Parker said he shares employees' frustration, at one point calling the silence silly, but America West is prevented by securities regulations from saying any more until a deal is done or the talks are called off. He promised employees that when and if a deal is done, the company will be more candid than ever.

Parker said America West likely won't have details immediately on what it means for individual jobs, but it should have specifics on how it thinks the combined company would work, how long it would take to merge operations and the like.

Even though sources close to the talks say the airlines are aiming for a Thursday announcement on the deal, Parker said only that he was hopeful the company would have news one way or the other in the "near future."
Merger May Be US Airways' Last Shot at Survival
By Keith L. Alexander
Washington Post Staff Writer
Wednesday, May 18, 2005; E01

For US Airways -- one of the oldest and most recognizable names in the industry -- time is drawing short. After plunging twice into bankruptcy protection and shearing off nearly $2 billion in costs, the nation's seventh-largest carrier is pinning its hopes of survival on a merger with America West Airlines.

"We don't have many other options left. This is it," said a US Airways Group Inc. executive who spoke on condition of anonymity because of the sensitivity of the negotiations.

Negotiations are entering a critical stage, with a deal possible this week, people familiar with the talks said.

If a merger succeeds, the Washington area could suffer a blow to its prestige as the new airline would likely move its headquarters from Arlington to Tempe, Ariz., the home of America West Holdings Corp. The merged carrier is expected to be led by America West senior executives and could move some of the 1,970 Washington-based jobs out of the Washington region.

The US Airways saga -- from one of the most profitable carriers in the mid-1990s to its near demise today -- symbolizes the travails of the entire U.S. airline industry. It illustrates the hard times that befall companies that fail to adapt swiftly enough to changing times. The traditional airlines, like other older industries such as steel, retail and autos, have been slow to respond to the emergence of efficient, low-cost rivals and increasingly price-conscious consumers. A US Airways-America West merger could spur other troubled carriers to seek linkups, producing a leaner, more efficient industry.

US Airways, formerly known as US Air, has been a household name since it was founded in 1939 as All American Aviation based in Wilmington, Del. Ten years later, the carrier moved its corporate headquarters to a hangar at Washington's National Airport, then in 1989 moved again to its current home in Crystal City.

The airline flourished in the mid-1990s largely because of its dominance in the Northeast, where business travelers on short-haul flights paid rich fares -- for example, nearly $1,000 for a half-hour trip between Pittsburgh and Washington. Today, fares are considerably lower, but flights in and out of Washington are popular and lucrative and will not likely be reduced by a merged US Airways-America West.

"Washington is one of the few places they make money," said airline consultant Darryl Jenkins, visiting professor at Embry-Riddle Aeronautical University. "They would be silly to give up an asset like that."

The airline's gradual descent began around 1998, according to several current and former executives, labor leaders and employees. US Airways was still turning a healthy profit, but signs of its future troubles were emerging. At the heart of its struggles has been the often tense relationship with its workers, many of whom have been at the airline for 30 years or more -- much longer than most of the senior executives. As the airline's fortunes have fallen, executives have had a hard time persuading workers to accept changes that have often led to lost jobs or wages. Workers have grown distrustful of managers who sometimes have backed off assurances to the rank and file while doling out millions of dollars in retention incentives to executives.

The airline recently revealed that it is paying $55 million to keep some of its top executives as it tries to complete the America West deal. The retention pay angered many US Airways workers who have given up more than $1 billion in pay and benefits this year.

As far back as 1999, workers resisted the airline's efforts to increase service of 60-seat regional jets on routes where tiny turboprop planes were in use. US Airways managers said the shift was necessary to compete with other airlines such as Continental, Northwest and Delta, which were quickly adding the smaller jets on routes where US Airways had only turboprops. But the workers, fearing that the change would result in cuts in jobs and pay, wanted assurances of job security.

While managers and employees spent two years negotiating over the use of the new planes, competitors continued adding their own regional jets and stealing passengers from US Airways.

Threats to US Airways, meanwhile, were emerging on another front: Budget carriers Southwest and AirTran were stepping up expansion of their service along US Airways routes. Weakness in the economy and growth of the Internet was driving business travelers toward the cheaper fares. US Airways prices remained high to cover its higher costs. Management insisted that travelers were happy to pay because in exchange they got full service that the budget carriers weren't offering.

By 2000, US Airways faced another new competitor: low-fare carrier JetBlue. The budget carriers were beginning to present a formidable threat to long traditions in U.S. air travel.

US Airways was stymied from launching an aggressive response to the fast-moving changes in the industry partly because during some of this time it was also focused on enticing United Airlines into a possible merger and on winning approval of the plan from the government. The airlines announced in 2000 that United would acquire US Airways for $12.3 billion.

For the next 15 months, executives turned their attention to securing the deal. They argued that the merger was critical to US Airways' survival because the airline was too small to compete with the larger global carriers such as American, United and Delta and that its cost structure and operations were too complicated and costly to battle the low-cost carriers.

The Department of Justice didn't buy the arguments. In July 2001, it blocked United from acquiring US Airways, saying the deal would reduce competition and result in higher fares.

"They put the entire future of the airline into this merger," said Roy Freundlich, who served as chief spokesman for US Airways' pilots union from 1997 through 2003. "They spent an entire year on getting that merger through. It was the greatest neglect of the airline."

The government's decision forced US Airways executives to quickly find ways to reduce costs so the airline could continue operating on its own. Executives returned to the negotiating table in a bid to persuade the labor unions -- most important, the pilots -- to allow the airline to add the regional jets.

The biggest blow to US Airways -- and the industry -- was just around the corner. After terrorists hijacked four planes and crashed them into New York's World Trade Center, the Pentagon and a Pennsylvania field on Sept. 11, 2001, US Airways' spiral intensified. The airline slashed 11,000 jobs and eliminated about 20 percent of its operations. It filed for Chapter 11 bankruptcy protection in August 2002, and executives embarked on a fast-track reorganization, quickly lining up much of its exit financing and securing a $900 million loan guarantee from the federal government.

The airline emerged from court supervision after just eight months, having cut about $2 billion in costs, with more than $1.2 billion coming from employee concessions in pay, benefits and work rules. The airline also eliminated an additional 17,000 jobs. Still, many analysts speculated that the cuts were not deep enough and that the carrier should have stayed in bankruptcy rather than emerging just as the country was in the early days of its war in Iraq.

US Airways executives contended they had no choice but to take the airline out of Chapter 11 when they did. They said several lenders tied approval of loans to the emergence date, and that the airline's credit card processor demanded that US Airways emerge by the scheduled date.

The airline's fortunes only worsened. The war weakened travel demand, the economy was sluggish and Southwest Airlines moved into US Airways' biggest market, Philadelphia. By now, the budget airlines had snatched about 20 percent of the aviation market, up from 5 percent in the late 1980s. Projections put their share at 40 percent by 2006, according to US Airways at the time. The growth has come primarily on shorter routes of about 500 miles and has been concentrated in the Northeast.

With revenue still low, US Airways' costs continued to climb -- rating among the highest in the industry. In September 2004, the airline filed for bankruptcy protection for a second time in two years. Another round of worker concessions lopped off $1 billion in costs, and the airline has also brought in Bruce R. Lakefield as its third chief executive in three years.

"Every employee . . . has taken a hell of a beating," said Bill Freiberger, general chairman of US Airways' machinists union. Freiberger, 57, said the past decade has been among the most difficult in his 37-year career at the airline.

A deal with America West, Freiberger said, would help relieve a lot of the stress among workers who remain concerned about their future. "It would be nice to have the employees be able to relax for a while. This has been a roller coaster ride for the last 15 years."
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Old May 19th, 2005, 01:46 AM   #15
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If America West and US Airways do merge, something I think would be a suicidal move by AW management, they should call it US Air...no Metrojet...no Piedmont...no Allegheny...no Eastern-Western...there are no good names left!!
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Old May 19th, 2005, 11:43 AM   #16
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Piedmont sounds nice, but internationally, US Airways doesn't have a good or bad reputation. It's just known. Keep it. Creating a new brand from scratch isn't going to help. Maybe they can buy Pan-Am or TWA's names!
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Old May 19th, 2005, 12:30 PM   #17
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US Air-America West close to merger - WSJ
Thu May 19, 1:43 AM ET
US Airways Group Inc. and America West Holdings Corp. are finalizing a merger that could be announced as early as Thursday, the Wall Street Journal reported.

Merger talks had intensified after the securing of a crucial $250 million loan from aircraft maker Airbus and as the airlines neared equity and financing agreements with other players, the Journal said, citing people familiar with the matter.

The board of US Airways met on Wednesday and America West's board was scheduled to meet on Thursday, with the airlines preparing to announce late Thursday a deal that would create the sixth largest U.S. airline, in terms of traffic, and ultimately bring US Airways out of bankruptcy-court protection, it said.

The two airlines were expected to raise about $500 million in new equity from Air Canada, regional carrier Air Wisconsin Airlines, two hedge funds and a rights offering, the newspaper reported sources as saying.

That was in addition to the $250 million loan from Airbus. Other fund raising, including potential sales and lease back of planes, was expected to raise up to $1 billion in new capital.

The airlines were also discussing restructuring $1 billion in loans guaranteed by the federal Air Transportation Stabilization Board that was set up after the Sept. 11 attacks took a huge toll on airlines.

Agreement details still needed to be hammered out with General Electric Co., the largest creditor of both airlines, and with ACE Aviation Holdings Inc., parent of Air Canada, the Journal said.

Even if a deal is completed, industry observers warn the new carrier would face opposition from labor unions, tough industry conditions and competition from budget carriers.
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Old May 19th, 2005, 12:36 PM   #18
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Posted on Thu, May. 19, 2005

A clearer path for US Airways
An attempt to merge with United Airlines in 2001 snagged. The potential deal with America West has fewer obstacles.
By Stan Choe and Rick Rothacker
CHARLOTTE, N.C. - Fliers and regulators are unlikely to object enough to scuttle any merger of US Airways and America West, analysts and consumer groups say.

That would mean a relatively easy jump over the hurdle that tripped up US Airways' last attempt at a merger. Four years ago, the U.S. Justice Department stopped a proposed combination of US Airways and United Airlines, saying it would hurt competition and lead to higher fares.

But a deal between US Airways and America West, which could be announced as soon as this week, would be much different and would likely pass regulators' scrutiny.

US Airways and America West compete on few routes, with the two focused on opposite coasts. They have the advantage of the "ailing-carrier doctrine," a federal rule that helps mergers that would save a failing airline. A combined company would be less of a threat to ticket buyers because the market is increasingly driven by low-fare competition.

United and US Airways "were looked at as the big kids on the block, the ones driving the market," said Dean Headley, an associate professor of marketing at Wichita State University and author of an annual report card on airline quality.

But low-fare carriers have nearly 30 percent of the market today, up from roughly 5 percent in the late 1980s, he said.

"The government is getting a dose of reality," Headley said, adding that, if it does not allow some consolidation, "we're going to end up with only three or four airlines in this country."

The Justice Department would not comment on speculation about a possible merger of US Airways and America West, spokeswoman Gina Talamona said. Representatives of both airlines also would not comment, saying only that they continue to work toward a deal.

US Airways is Philadelphia's dominant carrier and employs 5,000 in the region. It is operating under Chapter 11 bankruptcy protection for the second time in three years.

Besides the Justice Department, a bankruptcy judge, major creditors, America West shareholders, and the federal agency backing loans for each airline would have to approve any deal.

Such a deal would likely have an easy path through the Transportation Department, which gives its own recommendation, said Robert Mann, an industry consultant. There, the two airlines could use the ailing-carrier doctrine.

In the Justice Department, regulators are swayed by formulas, industry observers say. One is to measure the market share of a combined company. But with so little overlap between the airlines' route maps, that formula would likely produce results friendly to the deal, Mann said.

Another factor that Justice Department regulators study is whether a merger would hurt consumers. Several consumer groups are already saying it would not.

Prices are so low that most airlines are bleeding money. Kevin Mitchell, chairman of the Business Travel Coalition in Radnor, Pa., fought a merger of US Airways and United for more than a year, but said he did not expect a fight if this deal became a reality.

"The environment was much different," said Mitchell, whose organization works for lower business fares. "There wasn't the price discipline we have here today with low-cost carriers."

John Heimlich, chief economist for the Airline Transport Association, said he did not see any opposition from competing airlines either.

"Everyone has been pretty quiet so far, and that's pretty telling," he said. "I think a lot of folks see this as inevitable. They're saying: 'They may sink or swim, but let them try.' "
Nonstops may soar in merger
By Thomas Olson
Thursday, May 19, 2005

Air travelers nationwide might see more nonstop and one-stop flights from the large hubs of a merged US Airways and America West, but less so from Pittsburgh, experts said Wednesday.
New travel service also could be generated by the lower fares for which America West is known, they said. Phoenix-based America West is the second-largest low-fare carrier, behind leader Southwest Airlines.

"It could expand the route networks geometrically for both and open up lots of places," said David Stempler, president of the Air Travelers Association, a travel service and advocacy group based in Potomac, Md.

"A merger would mean more single-line air service to more cities," said Stempler. "It's always an advantage to stay on the same airline if you have to change planes because it's easier for passenger and bag connections."

Passengers in East Coast cities where US Airways dominates could gain nonstop access to larger cities on the West Coast, where America West is strong, said Stempler and other experts. Conversely, America West customers might see nonstops to places on the East Coast.

The potential combination of the two route systems led the merger talks to be dubbed "Project Barbell."

US Airway is trying to fashion a plan to reorganize operations and emerge from bankruptcy by the end of the year. Analysts give an America West merger, whose talks the airlines acknowledged a month ago, the best chance for US Airways' survival.

Which cities would pair up for the merged airline's new nonstop flights "depends on the creativity of the new management team," said Kevin Mitchell, chairman of the Business Travel Coalition, a business passengers' advocate in suburban Philadelphia.

"The most logical new service from Pittsburgh would be to larger spoke cities American West now serves on the West Coast where it has good daily traffic but not enough to run nonstops," he said.

For instance, the merged entity might create a direct, nonstop flight between Pittsburgh and Reno, Nev. Currently, neither airline flies the route without passengers stopping to change planes at least once in Denver or Philadelphia or another large base.

Additional nonstops from Pittsburgh might include such West Coast destinations as Portland, Ore., or San Diego, said Mitchell.

"When you combine the equipment, airports and crews, you have an opportunity to be very creative," said Mitchell. "You'd want to look at (city pairings) that neither now serves and that has the traffic to justify adding nonstop flights."

US Airways passengers in Philadelphia and Charlotte, however, would gain more new destinations and flights. The hubs originate, as well as connect, more traffic that would justify new service to America West cities in the western U.S., Mexico and Canada, said Stempler.

For its part, America West sees the merger as a defensive move against expanding discounter Southwest and against major-carrier competitors trying to change into low-fare airlines. Delta, for instance, adopted simpler and lower fares in January.

America West CEO Doug Parker told shareholders at their annual meeting Tuesday that abnormally high fuel prices and over-capacity is "a bad combination" for the industry. And fare-price pressures are preventing a recovery.

"Doug Parker said there'd be consolidation in the airline industry," said Stempler. "And America West and US Airways figure that by consolidating, they can be sure of being one of the survivors.

"It clearly would put US Airways in a stronger position," he said. "But will it put America West in a stronger position?"

Unless US Airways used the merger to ground about 50 airplanes, however, the merger would not do much to solve the over-capacity problem, Gary Kelly and Gerard Arpey, CEOs of Southwest and American airlines respectively, said yesterday, according to the Associated Press.

Currently, US Airways operates 3,474 departures a day, and America West, 924 a day. Hubs are located in:

Charlotte, where US Airways has 578 daily flights
Philadelphia, where US Airways has 500 daily flights
Phoenix, where America West has 323 daily flights and
Las Vegas, where America West has 140 daily flights.
In addition, US Airways operates 236 daily flights from Pittsburgh, 205 flights from Washington, D.C., and 204 flights from New York's LaGuardia.
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Old May 20th, 2005, 09:18 PM   #19
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Information overload! So, we know...it'll be fifth or sixth-largest, depending on what is measured, its HQ will be in Tempe, it'll be known as US Airways, and all planes will be painted that way, Philly, Phoenix, and Charlotte will be primary hubs, and Las Vegas and Pittsburgh (returns) as secondary hubs, and it seems they will remain in Star Alliance(?).
May 20, 2005
US Airways and America West Plan to Merge

US Airways and America West Airlines said yesterday that they planned to merge in a $1.5 billion deal that would create the nation's fifth-largest airline and one of the biggest low-fare carriers.

The agreement, which still faces major hurdles, is the first significant merger in the industry in four years and the first since the September 2001 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 country's 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 while America West is on the West Coast.

The companies plan to do business under the US Airways name, but base their operations at America 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, 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 retain 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 of 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 W. Douglas Parker, the chief executive at America West, who will run the combined airline as chief and chairman.

Bruce Lakefield, the chief executive at US Airways, will become vice chairman of the combined airline. In the statement, Mr. Lakefield said that 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 yesterday. 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 the deal was dropped 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 a quartet of 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.

America West and US Airways said they may also seek to raise an additional $150 million in new stock.

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.

Yesterday, Mr. 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 US Airways-America West transaction remain, however.

The deal requires approval by a federal loan board, which granted loan guarantees to both airlines after the Sept. 11 terrorist attacks. Together, US Airways and America West owe more than $1 billion on their federal loans.

A spokeswoman for the loan board said it was reviewing the deal and "will continue to work with the airlines to make sure that taxpayers' interests are protected."

In an interview, Mr. Parker said the two airlines would eventually repay all of their outstanding loans backed by the federal government.

The deal also requires approval by a federal bankruptcy court in Alexandria, Va. US Airways, which is based in Arlington, Va., has been operating under bankruptcy protection since last 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 the deal goes through, however, it would lead to a new national airline, boasting low costs and promising low fares. The new company would have primary hubs in Phoenix, Philadelphia and Charlotte, N.C., and secondary hubs in Las Vegas and Pittsburgh.

For the last few years, industry executives, including Mr. Parker, have contended that the industry was sorely in need of consolidation so that it could eliminate excess seats.

The deal could prompt other airlines to examine whether they need to combine.

But the deal, in reality, would do little to reduce service, except to remove one name from airport concourses, industry analysts said. One big fear is labor unhappiness.

Though they have the same unions representing pilots and flight attendants, each airline has a different union for mechanics - the International Brotherhood of Teamsters at America West, and the International Association of Machinists and Aerospace Workers at US Airways.

That could lead to immediate disputes over seniority and assignments. The airlines said yesterday that this would be sorted out over time. The Air Line Pilots Association said it would scrutinize the deal and make sure its members were protected.

"We're anxious to become a partner in what could become the country's premier low-cost carrier," said Jack Stephan, a spokesman for the pilots' union at US Airways.

But industry executives said the financial problems at both airlines in recent years 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, Mr. Whitehurst said, "the combined ship sinks faster."

But other industry specialists said Mr. Parker, who has run America West since shortly before the September 2001 attacks, would be determined to make the deal succeed.

"He's not a guy who's sitting around waiting for the world to pass him by," said Michael Allen, chief operating officer at Back Aviation Solutions, an industry consulting firm. Mr. Parker believes America West "does not need to be only a left-coast player," Mr. Allen said.

America West, which began flying in 1983, was one of the first airlines founded after the industry was deregulated by President Jimmy Carter in 1978. It grew steadily throughout the 1980's but filed for bankruptcy protection in 1991, emerging three years later.

Late last year, America West investigated a merger with ATA Airways, which is operating under bankruptcy protection.

US Airways, meanwhile, is the descendant of a company formed in 1939 to provide mail service to western Pennsylvania.

US Airways filed for Chapter 11 bankruptcy protection in 2002. Though it emerged in 2003, with the help of $900 million in federal loan guarantees, it filed for bankruptcy protection again last September.
US Airways To Merge, Move Base To Arizona
Fate of 1,970 Workers In Area Unclear Under Deal With America West
By Keith L. Alexander
Washington Post Staff Writer
Friday, May 20, 2005; A01

US Airways Group Inc. and America West Holdings Corp. said yesterday that they would merge in a $1.5 billion deal that would create the nation's largest budget airline with service throughout the United States and overseas.

The airline would operate under the US Airways name. US Airways would move its headquarters from Crystal City to Tempe, Ariz., the home of America West. The merged carrier would reduce its combined flights 12 to 13 percent. Most destinations would remain, but some current nonstop cross-country flights would be routed through a hub.

Fares probably would come down, industry observers said. "There will be more cities where fares will drop than go up," said Terry Trippler, chief executive of FareFacts.com Inc., which runs a Web site that provides information on airline fares. "America West has been successful and profitable with their lower fares."

A move to Tempe would raise questions about the future of US Airways' 1,970 Washington area workers, 600 of whom work in Crystal City.

"It's not possible to estimate how many layoffs that there may or may not be in Washington," said W. Douglas Parker, chairman and chief executive of America West.

The airline would still operate through US Airways' hubs in Philadelphia and Charlotte, and America West's hub in Phoenix. It would also continue to serve its high-focus cities of Washington, Boston, New York and Fort Lauderdale, Fla. The airlines' frequent-flier programs would be combined and members would retain their mileage points and status designations, executives said. The airlines expect to have their flight schedules coordinated and planes rebranded by year-end.

Parker would be chairman and chief executive of the new airline, while Bruce R. Lakefield, US Airways' president and chief executive, would be vice chairman.

Lakefield said the headquarters would be in Tempe because real estate and other costs are lower there than in the Washington area.

The combined airline would be the nation's fifth-largest carrier and would put pressure on other airlines, particularly low-cost carriers such as Southwest and AirTran Airways. The deal could also encourage struggling carriers such as Delta, Northwest and American to contemplate mergers or even steeper cost-cutting.

US Airways, the nation's seventh-largest carrier with nearly 30,000 employees, is twice the size of America West, the nation's eighth-largest airline with 14,000 employees. Its routes are primarily on the East Coast, while America West concentrates its service in the Midwest and West. US Airways is in its second Chapter 11 bankruptcy reorganization since 2002.

America West was launched in Tempe in 1983 with a fleet of three planes and a couple of hundred employees. Today it has 192 airplanes with about 100 nonstop flights from its hubs. Under Parker, America West became a low-cost carrier, and it began marketing itself as an airline that offers the best of both worlds -- bargain fares and some big-carrier perks. For example, the carrier offers a $198 round-trip coach fare between Baltimore and Las Vegas, with the option of buying a first-class ticket for $1,128.

The deal with America West is US Airways' second attempt to merge with another airline. The carrier sought to combine with United Airlines in 2000. But after the two airlines spent more than a year trying to persuade labor unions, Wall Street and government regulators to accept the deal, the Justice Department killed it, contending that the merger would have reduced competition and resulted in higher fares.

Some industry consultants said it was unlikely that the Justice Department would object to a combination of America West and US Airways because the airlines' route systems do not heavily overlap, as those of United and US Airways did. One of the biggest critics of the United-US Airways deal was R. Hewitt Pate, who resigned this month as head of the department's antitrust division.

Also, airline consultant Robert W. Mann said, Justice Department officials may be less reluctant to object to the deal because airline finances have declined drastically since 2001.

Besides the Justice Department, the deal would also need approval from U.S. Bankruptcy Court, US Airways' major creditors and America West shareholders. The Air Transportation Stabilization Board, the federal agency that pledged government money to back loans for both airlines, would also have to sign off. The two airlines combined have about $1 billion in outstanding loans.

The companies expect the deal to be completed by the fall.

Analysts said the airlines' biggest challenge would be integrating their workforces and sorting out seniority, which affects vacation time and other issues. The airlines don't expect to merge their labor groups for two to three years.

"They're going to have their hands full," said Raymond E. Neidl of Calyon Securities. "I think US Airways has a better chance of surviving now than it did as a stand-alone."

Executives boasted that the combined airline would be one of the industry's strongest with about $10 billion in annual revenue and $2 billion in cash. The deal would save the combined airline about $600 million, the executives said.

Most of the financing came from outside investors. Investment firms including ACE Aviation Holdings, parent company of Air Canada; Boston-based PAR Investment Partners; Virginia-based Peninsula Investment Partners; and Eastshore Aviation Holdings, which is owned by Air Wisconsin Airlines Corp. and shareholders, contributed $350 million. European aircraft manufacturer Airbus invested $250 million in exchange for the airline becoming a launch customer of the upcoming Airbus A350.

The airlines also received $675 million through debt refinancing and other investments from credit card companies. Commitments of $425 million in additional cash came from "strategic partners and vendors," which the airlines did not identify.

America West shareholders would own 45 percent of the new airline, while the new investors would own 41 percent. US Airways' creditors would own about 14 percent.

Retirement Systems of Alabama, which became US Airways' largest shareholder during the carrier's first stint in bankruptcy protection, has not invested in the merger. Lakefield said talks with Retirement Systems Chairman David G. Bronner are continuing.

AmWest chief aims to win in merger
Glen Creno
The Arizona Republic
May. 20, 2005 12:00 AM
Doug Parker, the easygoing America West chief executive, has rolled the dice and won time after time when the airline's future was on the line.

Now, Parker is making a $1.5 billion bet that a merger with bankrupt US Airways is the ticket to a secure future for America West. On the line: thousands of jobs, the fate of a crucial local company and Parker's reputation as either a smart dealmaker or a rash risk taker.

Parker, 43, has shown a willingness to break with the pack in key strategic moves at America West. He cut business fares, eliminated the long-standing requirement for Saturday-night stays and started charging customers for food. He managed to keep America West out of bankruptcy in the industry turmoil following the Sept. 11 attacks.

Through it all, Parker has displayed an understated ease that earned him the nickname "boy CEO." The question these days is whether Parker has the grit and the smarts to meld two very different companies into a nimble competitor in the ruthless airline business.

In US Airways, America West is hooking up with a company that is loaded with debt, unhappy employees and a reputation for such operational snafus as late arrivals and lost bags.

The merged company may need some tough love before it's back on its feet.

Parker, as steward of hundreds of local jobs at Tempe-based America West, will be under the gun not to give away any of them in the merger. Many of the company's employees have devoted most of their working lives to America West and don't believe the company needs this merger to survive, especially if it costs them their jobs. Parker risks being seen as the bad guy if jobs disappear and the deal doesn't click.

"If the merger goes through and drives both airlines under, that will be his legacy in the industry," said Andy Marshall, secretary-treasurer and principal officer for the International Brotherhood of Teamsters Local 104 in Arizona. "If not, it's a whole other story. . . . It will be interesting to see how hard of a bargain he is able to drive to protect America West employees. US Airways needs this deal, but America West doesn't."

Parker would head the combined companies, which would be based in Tempe and fly under the US Airways name. The airline would be the country's fifth-largest, with more than $10 billion in annual revenue and about $2 billion in cash when the deal closes. It will face big challenges integrating workforces, schedules and fleets and operating in one of the most difficult environments to ever face the industry.

People close to Parker say he demonstrated his skill at corporate triage when he steered America West through the industry's post-Sept. 11 collapse, and they expect him to deliver in the latest challenge, too.

"He's a good guy and a nice person, but he's very competitive," said Andy McCain, chief financial officer of Phoenix-based Hensley & Co. He attended Vanderbilt's business school with Parker in the mid-1980s.

"I think it's a byproduct that he played football in college. When we were in graduate school, playing cards or darts or pinball, we played to win. Second place was not your desired destination."

Bruce Lakefield, the US Airways CEO who would become vice chairman of the new company, believes Parker can handle the bigger job. He said Parker is a seasoned player and a survivor in a business that has claimed more-experienced executives.

"Doug's been around the block," Lakefield said. "I have every confidence he can do the job."

Parker, who resembles actor Jeff Daniels, has built a reputation as an easygoing, laid-back guy who puts religion and family at the top of his priorities. He and his wife, Gwen, have been married for 15 years and have three children. He's partial to Diet Dr Pepper, dips into every candy jar in the office, plays pickup basketball and often is seen at his kids' sporting events and class birthday parties.

Parker is known as a feet-on-the-desk guy who steers away from the fancy trappings favored by some corporate biggies. He has a raspy voice, delivers the occasional deadpan joke but doesn't say much beyond what is necessary.

"Doug has kind of an 'aw, shucks' demeanor about him when you greet him on Sunday morning," said Kelly Bender, senior pastor of Paradise Valley United Methodist Church. "He's not puffed up, not full of himself, and it's refreshing."

Parker teaches Sunday school at the church, and he and his family donate as well. Bender said Parker pledged 10 percent of a $1 million bonus he received a couple of years ago to a homeless shelter with ties to the church.

"I'm charged with preaching the gospel in paradise, a congregation with enormous affluence," Bender said.

"Now, there are lots of glad and generous hearts here, and there are lots of folk who don't have a clue that because they have been given more, they're expected to give more away."

Marshall, the union chief, and Parker could be natural adversaries, but Marshall gives Parker credit for saving America West.

"He truly has turned it around, and that's rare coming from me," Marshall said.
Valley benefits as low cost keeps offices here
Russ Wiles
The Arizona Republic
May. 20, 2005 12:00 AM
Tempe snagged the coveted corporate headquarters for the soon-to-be-merged America West Airlines because it offers lower costs and room to grow.

That announcement brought sighs of relief locally and a chance to boost Arizona's presence on the national stage.

The decision bodes well for Arizona vendors, local charities and the Valley's economy generally because corporate administrative jobs are among the highest-paying around.

Both companies employ about 600 people in their respective home offices. The firms didn't provide an estimated future head count in Tempe, saying job functions will be evaluated later.

The news was sweet relief to Tempe, which has been America West's headquarters since its first flight in 1983. Earlier, some feared that America West would move its corporate headquarters from Rio Salado Parkway to Virginia, where US Airways is based.

"This assures that America West remains in our community, remains stable and located here," Tempe Mayor Hugh Hallman said. "This demonstrates that this area is a very attractive area to have a corporate headquarters."

Top executives at both companies cited lower costs as a prime motivation.

"It's definitely less expensive to be in Arizona," said Bruce Lakefield, US Airways president and chief executive officer, in a press call. US Airways' current headquarters is in Arlington, Va., a Washington, D.C., suburb.

Doug Parker, America West's president, chairman and CEO, cited lower costs here and noted the Tempe facility has space for expansion - and a long-term lease that can't be broken.

Arizona has lost several corporate headquarters in recent years to mergers and acquisitions, from homebuilder Del Webb Corp. to electronics-parts maker Burr-Brown Corp.

But independent observers agreed Tempe held the cards over Arlington in this case.

"This is an opportunity for the merged company to redefine itself in a growing metro area," said John Boyd of the Boyd Co., a corporate-relocation specialist in Princeton, N.J. "If they had retained us to do an independent corporate headquarters analysis, our recommendation would have been metro Phoenix."

For starters, Boyd points to lower costs for housing, office rents, labor and other expenses in the Valley compared with northern Virginia, all of which makes recruiting easier.

In addition, America West's labor relations haven't been muddied to the extent US Airways was damaged by holiday-season labor strife at its Philadelphia hub and elsewhere. Staying in Arizona rather than moving East gives the firm an opportunity to improve labor-management ties, he said.

One possible advantage Arlington had over Tempe was closer proximity to federal aviation regulators in Washington, D.C., and to Wall Street firms in New York.

But neither Boyd nor Donald Schenk, president of Airline Capital Associates Inc. in New York, sees that as decisive.

"I'd think there are more reasons to have the headquarters in (metro) Phoenix than in Washington," said Schenk, whose company provides strategic planning and financial-advisory services.

America West, he noted, has held its own in Arizona against rival Southwest Airlines Co., whereas Southwest has made big inroads at US Airways hubs such as Philadelphia.

"I have trouble seeing any city in the East being a likely headquarters (for the company)," said Schenk, who thinks airlines should be based near their top operations.

Retention of the company's Tempe headquarters, and an expanded one at that, bodes well for local entities from accounting firms to charities.

America West donates roughly $3.5 million annually to more than 200 local groups, the vast majority of which are Arizona-based. Examples range from the Arizona Kidney Foundation and the Arizona Opera to the Fiesta Bowl and Valley of the Sun United Way.

"They've been an incredible partner for us for over 10 years," said Cathy Bischoff, interim assistant vice president for sales and marketing at the Phoenix Zoo. America West donates cash and offers air tickets to raffle at zoo fund-raisers.

"They are one of our main sponsors," she said. "We look forward to continuing our partnership with them."

Some critics ascribe the relative lack of high-paying jobs and cultural amenities in the Valley to a scarcity of local headquarters. Just three Arizona firms made this year's Fortune 500 list, for example.

That will change if the merged airline, as expected, nudges past Phelps Dodge Corp. and Allied Waste Industries Inc. to sit behind Avnet Inc. on the Fortune list, which measures companies in terms of revenues.

Mergers and headquarter-citing decisions offer opportunities for companies to change their images, Boyd said. "This is a great fit for both (metro) Phoenix and the airline."
Reactions analysts and experts
May. 20, 2005 12:00 AM
"There does seem to be a tremendous opportunity for synergy. I would suspect that a lot of their activity is going to be through Phoenix. It's going to be (a) principal hub in the United States. Phoenix is going to be a big piece of this new airline. This can only be positive."

On losing the name: "It's sad, isn't it? We kind of feel like we grew up with America West."

David Krietor

Phoenix aviation director

"There's less competition whenever there's one less carrier, so they might be able to inch up fares, especially in markets where they dominate."

Matthew Bennett,

who runs FirstClassFlyer.com, a travel-related Web site

"US Airways is not going to survive on its own. It's a no-brainer from their perspective."

Ken Coleman

Restructuring lawyer at Allen & Overy in New York

"He (Parker) is not a guy who's sitting around waiting for the world to pass him by. (AmWest) does not need to be only a left-coast player."

Michael Allen

Chief operating officer of Back Aviation Solutions, an industry consulting firm

"The wild card is labor. Integrating seniority lists, work rules and all that is difficult in the best of times."

Michael Roach

Roach & Sbarra Consulting, an airline consulting group based in San Francisco

"It remains to be seen how everything will be integrated."

Michael Boyd

Denver-based aviation consultant
Pros and cons of the deal
May. 20, 2005 12:00 AM

Merger pros

• America West would gain routes in Eastern states and overseas.

• America West would gain business travelers and have less reliance on lower-fare vacationers.

• Potential for a much larger low-cost airline that could better compete with Southwest Airlines.

• US Airways routes would be put under America West's highly regarded management team.

Merger cons

• Combining two labor-intensive companies carries high risk.

• Concerns exist about whether the combined entity would be financially strong enough to weather the industry's current woes.

• Possible layoffs of people in redundant positions.
Posted on Fri, May. 20, 2005

Airlines won't rush merger

Combining two unionized workforces will take two or three years in order to "minimize any dislocations," the companies said.

By Tom Belden and Jane M. Von Bergen

Inquirer Staff Writers

The challenges of combining the workforces of US Airways and America West Airlines may have prompted the carriers to delay putting their networks together, industry analysts say.

The airlines, in announcing the deal to form the nation's sixth-largest carrier, said that while they would operate under the US Airways name, they would take two to three years to integrate their labor groups. The emphasis, they said, is on "minimizing any dislocations within the work groups."

The go-slow approach, analysts say, reflects the problems many airlines have experienced with mergers.

Even before the merger announcement, union members were "hearing that it'll be two to three years before the work groups will be integrated," Candice Johnson, spokeswoman for the Communications Workers of America, which represents the flight attendants at both airlines and US Airways' customer-service workers, said yesterday.

For unionized employees in the airline industry, seniority determines how much they make and what schedules they work. US Airways Group Inc., since it has been flying since the late 1940s, has an older workforce than does America West Holdings Corp., which was founded in 1983.

In the past, airlines that have bought other carriers have run into trouble in putting the labor groups together. If an airline needs fewer employees once the merger is complete, workers with the least seniority, and the lowest pay, would be laid off first. Layoffs can lead to poor morale, and hurt customer service.

"This seems like the Achilles' heel of airline mergers, the integration of labor," said William T. Warlick, an analyst with Fitch Ratings in Chicago.

The America West Airlines unit of the Air Line Pilots Association said late yesterday that it would "defend the career expectations" of its pilots. It said any merger of the two pilot groups based on "date-of-hire," or seniority, is "a completely unworkable solution for the America West pilots."

When US Airways acquired Piedmont Aviation Inc. in 1987, it increased the pay of Piedmont workers to bring them in line with its workers and maintain labor peace. That is more difficult today, when carriers such as US Airways have had to slash labor and other expenses to compete with low-cost carriers such as Southwest Airlines Co.

Rather than entering into a full merger with completely integrated workforces, analysts say, the companies are forming a company in which their management and headquarters staffs would be merged first.

The airlines said that for two to three years, they will operate with separate operating certificates, keeping flight crews and maintenance and safety procedures separate.

That approach is made easier because the airlines' current route systems have little overlap, with US Airways concentrated in the East and America West in the Western states. America West has only five flights a day from Philadelphia, all to its hubs in Las Vegas and Phoenix. US Airways now has flights on the same routes and also has flights to the West Coast that compete with America West service that connects through the hubs.

At the same time, the two airlines could save money by combining their frequent-flier programs and other marketing efforts, and sharing gates and other airport facilities. The airlines said in their announcement yesterday that they had identified $600 million in "annual net operating synergies." That includes restructuring of routes, cost savings, and what the airlines see as a chance to increase revenue by improving flight connections between the carriers.

The decision to keep the two workforces separate delays, at least for now, jockeying among unions over which would represent classes of employees in a combined workforce.

America West and US Airways are hoping that the eventual merging of the labor groups will be made easier because their labor costs are similar, now that US Airways has been able to sharply cut such costs in bankruptcy.

Even though the Air Line Pilots Association and the Association of Flight Attendants represent workers at both airlines, the different units could still battle over how to merge the groups from each airline.

America West's baggage handlers are represented by the Transport Workers Union, while the International Association of Machinists represents US Airways' baggage handlers.

If either union represents at least 35 percent of the combined workforce, it can ask the National Mediation Board, a federal agency, to hold an election.

"We'd like to keep" the baggage handlers, said James C. Little, director of the air transport division for the Transport Workers Union. But, he said, having all baggage handlers represented by the IAM would be fine if it "salvages their jobs and gives them a long-term commitment. They aren't going to a nonunion group."

At the same time, unions representing workers at both airlines are putting out statements vowing to fight for their members' jobs and privileges.

"Our goal is to protect all our current workers," said Andy Marshall, secretary-treasurer of Teamsters Local 104 in Phoenix. The Teamsters represent 850 mechanics, 62 stock clerks and 3,200 customer service employees of America West.

"I want America West to be successful," Marshall said. "It wouldn't be bad for them to survive the fallout of the airline industry."

US Airways' financial situation troubles Marshall. "I have concerns about taking on the baggage of USAir. America West doesn't have to do a merger. They aren't on the verge of failing and USAir is."

But he sounded confident that America West could run a better airline and that his union could produce better contracts for workers than either the International Association of Machinists, which represents US Airways' mechanics and stock clerks, or the Communications Workers of America, the union for the customer-service representatives.

"America West's management is much better than USAir's, and they actually try to take care of their employees," Marshall said.
Posted on Fri, May. 20, 2005

US Airways puts future in merger

Hoping to emerge from 2d bankruptcy, it said America West deal would bring profit.

By Tom Belden

Inquirer Staff Writer

US Airways and America West Airlines announced a long-anticipated merger yesterday that the companies said would create a financially strong business, using fewer employees but giving consumers more travel choices.

The chief executive officers of US Airways Group Inc. and America West Holdings Corp. promised that Philadelphia, a US Airways hub with more than 5,000 of the airline's 30,000 employees, would continue to be a major part of the operation. But merging the workforces would eventually mean layoffs for an undetermined number of employees around the country, they said.

The deal is expected to be approved by federal regulators, U.S. Bankruptcy Court, and investors in America West and the financially troubled US Airways.

Combining the carriers, one that operates mostly on the East Coast and the other in the West, would create the nation's sixth-largest airline, with $10 billion in annual revenue. The new company would use the US Airways name but would shut down US Airways' headquarters in Arlington, Va. The combined airline's headquarters would be in Tempe, Ariz., where America West is based.

The airlines would have a combined frequent-flier program, and they would offer more connecting opportunities for passengers who now cannot easily reach some places in the other carrier's network, officials said.

America West chief executive officer Douglas Parker, who would be chairman and CEO of the merged airline, said the new US Airways would be "the first nationwide full-service low-cost airline."

That was a dig at Southwest Airlines Co., the discount leader that prides itself on having limited onboard service, and other larger and older airlines that have higher operating costs than the new US Airways expects to have.

"Consumers can do what they couldn't before, because now there will be more choices in the combined airline," Parker said. "Both airlines suffer now from not having truly national scale."

US Airways CEO Bruce Lakefield would stay with the company as vice chairman.

Philadelphia, where US Airways now carries 60 percent of the passengers, would continue to serve as a connecting hub for travelers from the West, Parker said.

"We view Philadelphia as very important to the combined route networks," he said. "We don't anticipate any material change to the Philadelphia operation."

Most of the immediate job losses would be among the 600 employees at US Airways headquarters in Virginia. The airline would need from two to three years to fully integrate its flight operations, which means that most other employees would keep their jobs for now, with any reductions coming slowly over time, Parker said.

"We won't need as many employees as exist today at the two companies," he said in a news conference at America West's headquarters. "How we get there remains to be seen."

While US Airways' operating costs are higher than America West's, US Airways' trip through Bankruptcy Court - its second in three years - enabled it to force new labor contracts on its unionized workers. Those contracts mean that US Airways has reduced its labor costs to the level of America West's.

"That's the piece other airlines have not been able to accomplish," Parker said. "US Airways has a workforce as efficient as the America West workforce, which is an amazing statement to make."

Parker said the combined company would be efficient enough to make money even with oil at $50 a barrel.

The companies said they expected to finance the transaction with about $1.5 billion in new capital, including chunks from regional airlines and European aircraft-maker Airbus S.A.S., and by selling newly issued stock. The airlines said they expected to save $600 million a year in operating costs once they are combined.

The investment from Airbus, whose planes both airlines now fly, is part of an agreement for the new carrier to be the first customer for the Airbus A350 jet. The widebodied aircraft, designed to compete with the Boeing 7E7 and eventually replace the Airbus A330, would be delivered in 2008, they said.

The merger agreement provides an outline of how US Airways, which has lost more than $1.5 billion over the last four years, can emerge from Chapter 11 bankruptcy protection this fall. The airlines said they also expected the merger to be completed in the fall.

But analysts and investors have been skeptical about its viability since the airlines acknowledged last month that they were talking.

Gary Hindes, a manager at the New York-based Fallen Angels Fund and Deltec Recovery Fund, which specialize in securities of companies in bankruptcy, said he doubted that a combined US Airways-America West would help the airline industry's troubles.

"There's still too much excess capacity, and, if you fly, you know the service at all these airlines is still terrible," Hindes said. "At some point they need top-line growth," but an America West-US Airways deal does not put any more passengers in the skies, he said.

John Murray, a stock analyst who covers aircraft-makers at Delaware Investments in Philadelphia, said he was hopeful that the combined companies would cut some routes, easing competitive pressures. He spoke after returning to Philadelphia on a round-trip $150 flight to Pittsburgh. "The cab ride cost half as much," Murray said. "The planes are full, but no one's paying much. It's just not a business model that is working."

Stephanie Naidoff, Philadelphia's commerce director, said the merger was a "wonderful and huge leap forward" for US Airways, "which is so important to us."

Kate Philips, Gov. Rendell's press secretary, said it was too early to tell whether the merger would be good for Pennsylvania. US Airways has reduced its Pittsburgh service and has been cutting flights at the state's regional airports. "If US Airways becomes more stable, that will be good."
US Airways, America West join forces
By Thomas Olson
Friday, May 20, 2005

With no alternatives left, bankrupt US Airways agreed to merge with America West Holdings Corp. on Thursday, hoping to create a low-fare airline with nationwide service by year-end.
The new airline will operate under the name US Airways and be funded by $1.5 billion in new capital. It will be headquartered in Tempe, Ariz., home of America West.

US Airways will likely downsize or close its Arlington, Va., headquarters, putting about 600 jobs in jeopardy.

"This is the beginning of something that can change our industry," said America West CEO Doug Parker, who will head the combined airline. "This will create the nation's first full-service airline with the pricing structure of a low-fare carrier."

Southwest Airlines immediately took issue with Parker's statement.

"We're the granddaddy of low-cost airlines," said Southwest spokeswoman Ginger Hardage. "Combining America West and US Airways is a long way from a low-cost airline."

The deal will combine the nation's seventh-largest and eighth-largest carriers, bumping discount king Southwest Airlines from its spot as sixth-largest, ranked by miles flown. The new carrier will provide daily flights to more than 200 cities coast-to-coast, plus Canada, Mexico, the Caribbean and Europe, combining US Airways' eastern dominance with America West's low fares and western strength.

The merger may result in the elimination of 5,000 jobs, or about 11 percent of the combined workforce of 44,100 employees, Parker said in an interview with Bloomberg News.

Most of the reduction would be by attrition and a slowdown in filling vacancies, Parker said. He said there would be no major layoffs, but admitted some furloughs would take place.

Cities currently served by both carriers will not lose air service, executives said. The possibility of additional flights in Pittsburgh was raised in the merger announcement, apparently upgrading the city's operational status to "secondary hub."

Last year, the city was downgraded to "focus city" from full-fledged hub, when flights were reduced from more than 500 to about 230 currently.

"It's synonymous with calling it a focus city. Pittsburgh operations will stay pretty much constant," said US Airways CEO Bruce Lakefield, when asked about the apparent upgrade. "At this point, we don't anticipate a further pull-down of service. And when demand is there, we'll add capacity in Pittsburgh."

The merger, rumored for several months, is US Airways' second attempt at a merger in five years. United Airlines agreed to acquire US Airways for $11.6 billion in May 2000, but the deal dissolved amid antitrust and other concerns a year later.

Labor union leaders reacted with guarded but upbeat responses.

"With the industry the way it is, consolidation for US Airways is basically a better plan than going solo," said Teddy Xidas, president of the Association of Flight Attendants' US Airways unit. She said flight attendants at both airlines are represented by her union, which should help in the process of workforce integration.

"I am not overly optimistic, but cautiously optimistic," said Frank Schifano, president of International Association of Machinists Local 1976, Pittsburgh. The local represents about 1,000 aircraft mechanics and other maintenance workers.

Schifano said he hopes a merger could bring more Airbus maintenance work to Pittsburgh, which would compensate for Pittsburgh's recent loss of heavy maintenance work.

An Air Line Pilots Association statement noted $7 billion in total concessions it has provided US Airways in recent years. It expected those "sacrifices will be respected" and welcomed the change to "partner in the creation of this country's premier low-cost airline."

Analysts said that if US Airways couldn't forge a merger with American West, bankrupt US Airways would find it very hard to keep operating indefinitely. "My view this is the superior alternative," said Marick Masters, a University of Pittsburgh labor professor. "If US Airways does not merge, the alteratives are far more draconian."

The airline lost $282 million in January, February and March, in addition to $611 million in 2004.

The merger will not occur until US Airways emerges from bankruptcy, which could happen as early as this summer, the company said. The deal must be approved by U.S. Bankruptcy Court, which has been overseeing US Airways' operations while in Chapter 11. As part of that process, other suitors for US Airways could emerge. But Parker said he believed the America West terms would win out.

US Airways still owes about $700 million from loans that were guaranteed by the Air Transportation Stabilization Board after Sept. 11, 2001. America West also owes the ATSB about $300 million.

To merge, both airlines would have to get the federal board's approval. Parker said he has talked with the board and believes the merger improves repayment prospects.

Parker would become chairman as well as CEO of the new airline. Lakefield would become vice chairman. A 13-member board would include six directors from America West's current board, four from US Airways' board, and three from the new company's equity investors.

US Airways Chairman David Bronner was not mentioned as having any role in the new airline. Nor was the Retirement Systems of Alabama, which Bronner heads, mentioned among the investors

The airline executives said the new US Airways would have about $10 billion in annual revenue and start with about $2 billion in cash. Parker also said the new airline would have one of the industry's lowest debt structures.

To improve operations, the new airline will cut costs and add new revenue totaling $600 million, including:

= Cuts of $150 million to $200 million from eliminating unprofitable flying and returning 59 airplanes -- mostly of US Airways' fleet -- to their lessor GE Capital Aviation Services. That equals about one in seven planes from the combined fleet.

= $150 million to $200 million in added revenue from restructuring routes, including better connections for passengers than under either system now.

= $250 million to $300 million from reducing overhead, especially among redundant information systems and facilities.

"I see some synergies, but I don't share their optimism," said Darryl Jenkins, a professor at Embry-Riddle Aeronautical University, Daytona Beach, Fla. He said $400 million to $500 million was more realistic.

Parker boasted that "we have created a competitive business that is profitable even with oil prices at $50 a barrel."

Sky-high fuel prices are one major reason airlines are losing money these days

"I don't know how they could become magically profitable at $50-a-barrel oil," said William Lauer, a US Airways analyst and chairman of Allegheny Capital Management, Tarentum.

The airlines' new backers include:

= Cash infusions of over $1.1 billion from debt refinancing, suppliers and other partners.

= Jet maker Airbus will loan $250 million, in exchange for the new carrier's acquiring several of its new A350 wide-body jets to the fleet in 2011.

= A total of $350 million in equity investments from the parent of Air Canada; PAR Investment Partners, Boston; a partnership led by regional airline Air Wisconsin; and Peninsula Investment Partners, a Virginia-based firm.

Lauer said it was "highly unusual to put together bits and pieces of capital from here and there" to fund a new airline. What "most disappoints" him is the fact each carrier's two biggest owners -- Texas-Pacific Group at America West and Retirement Systems of Alabama at US Airways -- are not part of the initial funding plan.

The merger also won't lower the airlines' fuel costs, which have doubled since early 2004. Parker projects the carrier faces fuel costs roughly $180 million higher in 2005 than a year ago.

But US Airways has made headway in cutting operating costs in the last two years. Latest U.S. government data show it reduced costs per available seat mile to 15 cents in the October-through-December quarter from 15.9 cents a year earlier.

That 15 cents is close to the 13.7 cent average of the seven-largest legacy carriers but still far from the 8.8-cent average of the seven low-cost carriers, the government said. And the low-cost, low-fare carriers are the ones US Airways has to beat, say analysts.

By contrast, America West costs were 8.6 cents per mile -- right in line with its low-cost peers.
Pittsburgh given little chance of regaining its status as hub
Friday, May 20, 2005
By Mark Belko, Pittsburgh Post-Gazette

Pittsburgh International Airport won't be resurrected as a hub as part of the US Airways-America West merger, but it could gain more work for mechanics if the two airlines decide to consolidate Airbus heavy maintenance here.

During a conference call with reporters after the merger was announced yesterday afternoon, US Airways Chief Executive Officer Bruce Lakefield said he does not anticipate any change in operations at Pittsburgh from the consolidation of the nation's seventh- and eighth-largest airlines.

Lakefield said Pittsburgh would remain as a "focus city" under the new airline. Although a press release announcing the merger listed Pittsburgh and Las Vegas as "secondary hubs," the difference appears to be more about semantics than actual operations.

US Airways currently flies 233 daily flights out of Pittsburgh International Airport, less than half the level of just a few years ago. It dropped Pittsburgh as a hub last year and has cut hundreds of daily flights.

Lakefield said he does not anticipate a further reduction in Pittsburgh as part of the merger with America West and said the merged airline will consider adding capacity if demand dictates. But based on his and others' comments, there appeared to be no chance for Pittsburgh to re-emerge as a major East-West connection point as it was for US Airways.

On the plus side, observers said, local customers could see average ticket prices fall. Fares have been moving down on many routes with the arrival this month of Southwest Airlines and with better pricing by US Airways as it remakes itself into a lower-cost carrier.

Perhaps the biggest potential payoff for the region from the merger could be heavy maintenance work on narrow-body Airbus jets, which represent about half of the mainline fleet of the combined carriers.

As part of its contract negotiations with machinists, which produced $353 million in concessions and hundreds of layoffs, US Airways agreed to do heavy maintenance on narrow-body Airbus jets in Pittsburgh, preserving 600 of 800 heavy maintenance jobs.

America West currently has about 90 narrow-body Airbus jets in its fleet, adding to US Airways' 117. The new airline plans to take delivery of 13 Airbus A320 jets previously ordered by America West and add another 30 A320 jets in 2009 and 2010.

During yesterday's conference call, America West Chief Executive Officer Doug Parker, who will run the new airline, said it was "too early to tell" whether there was a potential for more maintenance work in Pittsburgh.

He said that the airline currently contracts out its heavy maintenance work., using two private companies, one based in Macon, Ga., and the other in El Salvador, for work on its planes.

Lakefield, in response to the same question, said the merger contemplates all US Airways' labor agreements "being in place and honored," which would make it difficult for the new airline to outsource all Airbus heavy maintenance work.

Some experts, including Colorado-based aviation consultant Michael Boyd, believe the best hope for expansion in Pittsburgh rests with the maintenance work.

He said there is a "better than even" chance that Airbus maintenance work in Pittsburgh could expand. "It's already there. It's established. Both companies have Airbuses," he said.

One complicating factor could be Air Canada, which is interested in spinning off its maintenance facilities as a stand-alone company and becoming the combined maintenance provider for the merged airline. As part of the merger agreement, Air Canada's parent company, ACE Aviation Holdings Inc., has committed $75 million in new equity.

Boyd agreed with others that there is almost no chance for Pittsburgh becoming a hub in the new configuration, and that the more likely outcome is that the airport will lose some service as the airline seeks to save money. America West currently operates two flights a day from Pittsburgh -- one to Phoenix and one to Las Vegas, places where US Airways also offers two daily nonstops.

The carriers said their primary hubs will continue to be in US Airways' strongholds Philadelphia and Charlotte, N.C., and America West's home base in Phoenix. Boyd and others speculated the combined airline may have to find another airport or even a hub to better coordinate East-West flow, but Boyd said Pittsburgh is too far east to be considered and that St. Louis or Kansas City are more likely prospects.

Allegheny County Airport Authority Executive Director Kent George said he does not believe Pittsburgh will regain hub status, although he intends to lobby for more service. He pointed out that America West closed its Columbus, Ohio, hub only a few years ago.

"As I've said in the past and I say it again now, I do not see Pittsburgh becoming a major hub like it was a number of years ago. I see it continuing on with a strong [origin and destination market] and hopefully some connecting with the new US Airways," he said.

George said he intends to talk to Parker about adding service to Pittsburgh and "basing as much maintenance as possible" here.

Another aviation consultant, Terry Trippler, said Pittsburgh does have some potential as a hub if the new airline decides to add another, but said St. Louis and Kansas City also would likely get serious consideration.

During yesterday's news conference, Parker and Lakefield said Philadelphia would continue to be a major hub for the new airline, serving as a transcontinental, European, and Caribbean connection point.
Biggest task in America West-US Airways merger may be melding the people

Culture clash

Friday, May 20, 2005

By Dan Fitzpatrick, Pittsburgh Post-Gazette
TEMPE, Ariz. -- The well-tanned workers at America West Airlines' headquarters rarely wear ties or dark suits -- for a simple reason. "It's too damn hot," said spokesman Philip Gee.

This week, the laid-back employees came to work in capri pants and short-sleeve shirts as the temperature topped 100 degrees and America West rushed to complete its proposed merger with US Airways.

Standing nine stories above Tempe, where sunshine is visible 330 days a year, America West's desert-colored building overlooks rusted-red mountains, a barren river bed, an abandoned flour mill, the campus of Arizona State University and neighboring towns of Phoenix, Scottsdale, Mesa and Chandler. Overhead, planes pass intermittently to a landing at nearby Sky Harbor International Airport.

America West's relaxed desert setting and red-orange, white and teal colors provide an immediate contrast to the much older, more buttoned-down and metropolitan US Airways, provider of service to large East Coast cities such as New York, Philadelphia, Boston and Washington, D.C. US Airways' colors are a serious navy blue and gray, and its headquarters is across the street from the Ronald Reagan Washington National Airport, in a town where the accepted business attire is a dark suit.

In Phoenix, said America West co-founder Michael Roach, "Normal business dress is a golf shirt and nice slacks."

Melding these two cultures -- the casual, outdoorsy style of a young airline that's growing with the uptight, down-to-business mind-set of an East Coast carrier that's shrinking -- could be the biggest task confronting management if US Airways and America West hope to pull off the merger they announced yesterday.

Many workers at America West are concerned that the older US Airways, hailing from a time when the federal government set fares and routes, will take many of the jobs in the combined company, making them victims of union integration rules that emphasize length of service. Others are worried about assuming US Airways' history of high costs and traffic headaches.

But not Wendy Aver, a tan America West dispatcher who works in the company's new $35 million flight operations center at the Phoenix airport. Originally from Crafton, Aver worked as a dispatcher at US Airways for 12 years until losing her job in the post-9/11 cutbacks that swept through the industry.

Standing next to a series of computer screens showing flight patterns and weather conditions, Aver was a source of optimism amid all the gloomy talk of marriage. "I don't think there will be much of a culture clash at all," she said this week, before the official announcement. "I think we have got a great group of people and same thing back there."

America West began in 1983 with 280 employees, occupying the same downtown spot where it is today in Tempe. But nearly everything else about the airline and Tempe has changed since then.

Twenty-two years ago, Tempe had just cracked the 100,000 population mark, and neighboring giant Phoenix, with 800,000 residents, was the nation's ninth-largest city. America West's headquarters was a failed strip mall that the founders purchased with revenue bonds provided by the city of Tempe.

Now, Tempe has some 160,000 residents, and Phoenix, with more than 1.4 million residents and a population that's growing by 2,000 a month, is about to surpass Philadelphia as the nation's fifth-largest city. Likewise, America West has grown to become the nation's eighth-largest airline, as measured by passenger traffic, ferrying roughly 62,000 passengers daily around the country, primarily in the West.

Yet the upstart has retained much of its personality from those early days, when, perhaps inspired by the wide-open spaces of the desert or the informality of a start-up, it renovated the abandoned mall to reflect a feeling of openness and collegiality. It later replaced the original headquarters with a bigger building, but the new offices still open to an outdoor veranda, allowing everybody to see everybody else. The company was "very spunky" and "very informal," said Roach, one of the co-founders who now works as an airline consultant.

The founders were not from Arizona, but the chairman, Ed Beauvais, hailed from Pueblo, Colo., which in many ways shares the physical and spiritual characteristics of the Southwest. He knew the market from his time at a small Phoenix community carrier, believed the local airport was underserved and noted it was close to such big cities as Los Angeles and Las Vegas, where America West now has a hub.

Smaller Tempe, not Phoenix, landed the headquarters because it was more "flexible" with assistance, Roach said. "Tempe is a nice place," but, "there is nothing special about it." And, "Phoenix was just a hot city somewhere out in the desert."

America West survived a wave of mergers and airline failures in the 1980s, its own 1991 bankruptcy that ended in 1994 and the 9/11 attacks that nearly led to a second bankruptcy.

Some of the original esprit de corps vanished, Roach said, as a result of the bankruptcy and poor employee-management relations in the '90s. But some of that changed when current Chief Executive Officer Doug Parker, 43, took over just days before the 9/11 attacks. Now, Roach said, "I think it is a pretty happy, pretty cheerful place."

There also is little doubt these days about America West's impact on the Phoenix area. Southwest Airlines began service from Phoenix 18 months before America West did, but America West remains the hometown airline.

About 10,000 of the airline's 14,000 employees are based in the Phoenix area, and half of the traffic at Sky Harbor, the nation's sixth-busiest airport with 100,000 passengers a day, belongs to America West. The NBA's Phoenix Suns play in the America West Arena.

The Phoenix chamber of commerce rankled some competitors in the 1990s when it urged its member companies to "Frequent Our Hometown Flier." After the terrorist attacks in 2001, the chamber repeated that plea.

"I don't think there is any doubt that America West has played a great role in making Phoenix the vast and ever-expanding place that it is," Roach said. Because of that, he said, he believed that it would be unlikely that a merged carrier would end up with its headquarters back East.

"I would think those guys would be reluctant to give up Arizona to move to [the Washington, D.C., area]," Roach said. "People really like it. It is a very pleasant lifestyle, very much an outdoor life. A very, very pleasant place to live."
America West takes stunning gamble
But if it succeeds, saving US Airways could start industry turnaround
Arizona Republic
America West CEO Doug Parker and his team have made some brave promises: to create an airline that is both full-service and low-price, that will maintain the hub-and-spoke system decimated by Southwest, and that will be "one of the industry's most financially stable players."

Oh, and they will break the curse of US Airways. They'll even take the name.

The West produces great visionaries, and also great gamblers. Parker's appears to be that a combined US Airways and America West can weather the long-expected industry shakeout. Let United or Delta face liquidation, and suddenly this deal looks brilliant.

Even so, the audacity of the deal is jaw-dropping. Most big mergers don't perform as advertised, and airlines are among the worst cases. Southwest Airlines grew by winning customers rather that by acquiring large, bankrupt competitors.

Also, US Airways has left a long trail of good airlines destroyed, where its pathologies overwhelmed the good practices of the other carrier.

If the deal goes forward, America West will be armed with real money from new investors. But airlines have a burn rate that makes the most profligate enterprise of the dot-com era look prudent.

So time is not on the side of the new US Airways.

Thus, some of the most important issues will center on the timetable of two or three years for full integration.

This risks breaking the essential axiom for mergers and acquisitions, practiced masterfully by Jack Welch at General Electric: Make the pain quick and meaningful.

The new leadership team must get control of costs quickly, and that includes working with US Airways' famously intransigent unions.

The danger is falling into a General Motors-like trap of repeated cutbacks and repositionings that not only fail to yield results but damage morale and business.

If Parker succeeds here, it will be a breakthrough never before achieved at US Airways, not even by industry legend Stephen Wolf.

That will come from:

Building the business. Merger-driven cutbacks alone won't add customers, and could drive them away if service suffers.

Creating a healthy culture. This has been one of Southwest's key advantages. Parker must win over US Airways employees that are angry and numb from years of executive malpractice.

Winning consumers. Flying has become so onerous that there's a huge opportunity for an airline that could return friendliness and convenience to the industry. At the least, America West must avoid catching the surliness found on many US Airways flights.

Fixing the short-haul dilemma. US Airways has long been hobbled by costly flights between smaller markets. Fix 'em or shed 'em.

Managing the debt. This unsexy beast has undone many a merger.

Banning the investment bankers from headquarters for five years. The last thing this airline needs is more distractions from potential deals or suitors.

Remembering that the East isn't Phoenix. Attention must be paid to older cultures, fearful cities and predators betting this deal will fail.

Much is riding here, including the futures of thousands of employees and families in greater Phoenix, Charlotte, Philadelphia and elsewhere.

If Parker succeeds, it might begin the industry's return to health, if not to the grandeur of its past.
Ailing airline snags a partner

US Airways has tried so many cures; is America West the answer?


You've seen US Airways' moves before.

They're the guy in cheap shoes at the ritzy nightclub, hoping to talk a woman back to his apartment.

They're the woman outside the Jiffy Mart, looking to borrow a couple of bucks for lottery tickets.

They're hustling and schmoozing and chatting you up, but desperation lingers in their eyes.

You hope that US Airways finally made the big score Thursday when it agreed to merge with America West.

US Airways has almost twice as many employees -- 24,000 to America West's 14,000 -- but you can tell from the deal which airline is stronger.

The America West CEO will run the new company. The headquarters will move to America West's HQ in Arizona. America West gets more seats on the board of directors.

US Airways gets to keep its name. Well, at least it saves some money on stationery.

It's clear that some US Airways employees will not get to keep their jobs. The airlines' joint announcement called it "synergy," which sounds fun and exciting, like a new brand of gum.

Then you look at the fine print and read about reducing overhead and consolidating systems and combining facilities.

The new airline hopes to save $250 million to $300 million this way. Getting rid of the office picnic won't quite cut it.

A lot of employees are holding out hope that America West (along with some new investors) can make US Airways healthy again.

If so, America West should put in for the Nobel Prize -- not in economics, but in medicine.

Over the past few years US Airways has tried blood transfusions, acupuncture, copper bracelets, aromatherapy and juju roots.

It always comes back to the same ailments. Income too low. Expenses too high.

And so US Airways has filed for bankruptcy protection twice, has forced cuts in union contracts, has shed employees at every painful step.

Now the airline is trimmed of all its fat and most of its flesh. And somehow, after all this cosmetic surgery, it has landed a handsome partner.

Why would America West take on the burden? Look at the name.

The West is a fine place, but the East holds all the juicy airline routes, all those moneymakers in and out of New York and D.C. and Boston.

Those routes are as tempting as champagne, and about as good for you.

The competition is so brutal that airlines slash fares to stay alive, and pretty soon we're back to income too low, expenses too high.

Despite the odds, I'm rooting for US Airways. About 5,600 people still work for the airline at its Charlotte hub.

But thousands of others bailed out long ago, or started working jobs on the side. Stockholders, holding the paper of a company twice in bankruptcy, joined them. US Airways shares shot up 61 percent Thursday -- all the way to $1.24.

I hope the merger works. But I can't shake the feeling that US Airways is still prowling the club, spraying on one more shot of cologne, looking for something that lasts.

And it's just about closing time.
Little change for Charlotte?

City will keep its hub status; airport director says prices could fall


Staff Writers

For Charlotte, the new US Airways could look a lot like the old US Airways.

In the merger announced Thursday with America West, the city's dominant carrier would keep a hub in the city and likely a similar complement of flights, possibly at lower fares.

The airline's 5,600 employees here also could be spared harsh job cuts, Charlotte Mayor Pat McCrory said.

The mayor spoke to US Airways CEO Bruce Lakefield, who will be vice chairman of the merged company, Thursday evening. McCrory said Lakefield promised "at most, a minimal impact on employees" in Charlotte.

"I think it's extremely positive news for US Airways," McCrory said, "which in turn is positive for Charlotte."

Lakefield also told McCrory that service should remain at the same level in the city. US Airways, based in Arlington, Va., has its largest hub in Charlotte, with as many as 577 daily flights. The airline carries about 90 percent of the airport's flights.

Because US Airways dominates flights here, Charlotte has some of the highest fares in the nation. But Charlotte/Douglas aviation director Jerry Orr, who runs the city-owned airport, is looking for lower prices out of the merger.

A combined carrier, with a new pricing model, means prices could fall more in line with other cities, Orr said. "We really expect a more rational pricing scheme," he said. "It's clear that the public is pretty fed up with some people paying $100 and some paying $800 for the same seat."

He said Charlotte prices have already started to drop over the past year. With the merger, which the airlines anticipate closing this fall, "I think you're going to see prices continue to go down."

AirTran is already coming into the airport, and that shouldn't change, he said. As for Southwest, the airline often coveted by travelers seeking low fares, Orr said he doesn't expect it any time soon. "As long as we're a major hub in a relatively small community, it doesn't fit their business model," he said.

As for US Airways employees, they haven't been too stressed by the news of an impending deal, said Mike Flores, Charlotte leader of the flight attendants union.

"I've not really heard many questions or fear from our membership," he said. "We've been through PSA and Piedmont (two mergers) before. It's an incremental process, and I'm sure this one will be like that as well."

It helps that US Airways workers generally have more seniority than America West employees, which should better ensure their place in the combined company. For example, about 80 percent of US Airways flight attendants have more than 14 years of experience, while the most senior America West worker was hired in 1983, when the airline was born.

Others in Charlotte also have a stake in the merger. Take Reggie Brezeault, owner of Carolina Classic Limousine, which carries passengers to the airport eight to 10 times a day.

"From talking to my corporate clients, some think it will be good and some think it will be bad," says the Montreal native, who came to Charlotte as a member of the Checkers hockey team. "It will help things to the West Coast. In the long run, I think it will be a good deal, good for Charlotte and good for accounts in Los Angeles and San Francisco."

The next step for the merger will be winning approval from bankruptcy court, creditors, regulators, shareholders. McCrory talked to Lakefield about how he can help, and Charlotte Chamber CEO Carroll Gray also says he's willing to give a hand.

"Air service is crucial to this economy," Gray said. "We will do whatever we can."

US Airways in Charlotte

• Largest hub.

• As many as 577 flights daily.

• 5,600 employees.

• 90 percent of passenger traffic.
US Airways lands a partner

Up to 5,000 job cuts coming; Charlotte keeps hub


Staff Writers

TEMPE, Ariz. - In its latest stab at survival, US Airways is merging with America West in a deal that could forge a strengthened, nationwide low-cost carrier, but also face significant hurdles with labor unions.

Confirming the long-expected marriage, the companies said Thursday the new airline -- operating under the US Airways name -- would offer fliers more options and cheaper fares while preserving Charlotte's status as a major hub. An infusion of $1.5 billion in new capital would finance the merger of the two cash-strapped carriers.

The link-up, which could start in the fall and take three years to implement, may result in as many as 5,000 job cuts, said America West Chief Executive Doug Parker, who would run the carrier. US Airways and America West employ 44,100 on their mainline and affiliate carriers. He said the deal would not result in "significant" layoffs and hopes to make cuts through attrition. Labor groups would integrate over two to three years.

US Airways CEO Bruce Lakefield, who would become vice chairman, told the Observer he foresees little change for Charlotte's hub. He said it would probably keep about the same number of flights to about the same destinations. Now, US Airways has 577 daily nonstops to 120 cities.

The new carrier, which would be based in America West's Tempe headquarters, would be the sixth-largest U.S. carrier, surpassing discount king Southwest Airlines. It would be the industry's first merger since American Airlines and Trans World Airlines joined in 2001. But it doesn't drastically cut the number of seats available in an industry awash with them.

US Airways and America West said their merger would save $600 million a year by cutting a total of 59 planes, eliminating unprofitable flying, shutting US Airways' Arlington, Va., headquarters and attracting more passengers. While US Airways is the bigger carrier, it's also the weaker one financially.

Analysts and even the airline CEOs themselves acknowledged there are plenty of obstacles before closing the deal by this fall as planned.

Because US Airways is in Chapter 11 bankruptcy court, other players are permitted to make offers that would trump America West's. Parker said he welcomes others to try, but "we've worked very hard to put together a plan that we feel no one else will be capable to beat."

Besides the bankruptcy court, the merger requires approvals from the Justice Department, a federal loan board and America West shareholders, among others.

"The real work begins now," Parker, 43, said.

Parker and Lakefield said the two sides started talking a year ago, before US Airways' relapse into bankruptcy protection in September. After US Airways won steep labor cuts from its unions, the talks intensified at the beginning of the year.

Charlotte would join Philadelphia and Phoenix as major hubs with the new carrier, with secondary hubs in Las Vegas and Pittsburgh.

The companies say the new airline would become the "first national low-cost hub-and-spoke network carrier." Routes from Charlotte would stay mostly intact, although the city could lose some nonstops to the West Coast.

The deal would be greased by the infusion of about $1.5 billion in new financing, including at least $350 million in new equity and nearly $700 million from suppliers and vendors.

Analyst Ray Neidl with Calyon Securities says that injection of cash helps allay some of his worries about the deal. Analysts have generally panned the idea of the merger, saying it would be hard and costly to pull off amid high oil prices and falling fares.

"It's still a very, very big job in a tough atmosphere they're trying to do this in," Neidl said.

Although the combination is being billed as a merger, it places smaller America West in the pilot's seat. America West would provide six of the 13 members of the new board of directors. US Airways would chip in four, and the rest would represent new investors.

Current US Airways Chairman David Bronner would not be part of the new company, and the Retirement Systems of Alabama, which he heads, would lose its $240 million investment in the airline.

A combined airline, with the low pay scales both airlines won during trips to bankruptcy court, may better compete with Southwest Airlines and the other low-cost carriers dominating the market.

America West says the new company would be financially stable, with $10 billion in annual revenues, about $2 billion in cash and among the lowest debt levels of all major airlines.

Cost savings would come from reducing the fleet, overlapping management and duplicate vendors, such as software providers.

US Airways would stay in bankruptcy court as it sheds planes and hopes to emerge from bankruptcy court and close the deal in the fall.

For America West, the link-up would give the airline a stronger hold in the eastern United States and could help it stave off a cash crunch, which analysts expect will hit by winter.

Airlines have a poor history of making mergers work, analysts say. And several are still skeptical this one can reap all the projected cost savings and new revenue.

But the biggest concern for Michael Roach, who co-founded America West in 1983 and is now an industry consultant, is merging the two work groups.

"This is not a piece of cake for the employees of either carrier," he said. "I'm concerned that the US Airways employees, who have been through hell and back, are going to say, `Happy days, we have the higher seniority and to heck with the America West employees.' "

US Airways, because it is an older airline and because it has laid off many of its junior workers, is dominated by veterans: Its most junior pilot was hired in 1988. America West's most senior worker was hired in 1983, when the airline was born.

In the merger, where a worker ends up on the melded seniority list would determine whether he or she flies a big Airbus jet to Europe or a small regional jet to Greenville, S.C.; it would determine who gets to work and who stays on furlough; it would determine who gets to live in Charlotte or Las Vegas.

US Airways and America West executives took pains Thursday to ask their workers to, essentially, play nice with each other and try to work out the seniority issue.

Less than an hour after the merger announcement, America West's pilots issued a statement saying, "Clearly ... we would view a date-of-hire type of integration as a completely unworkable solution for the America West pilots."

Mike Flores, Charlotte leader of US Airways' flight attendants, said his union's bylaws clearly set date of hire as the determinant for seniority lists.

The merger also means a new round of contract talks for the combined airline's management. The workers will try to pick the most employee-friendly pieces of the two airline's contracts and ask for them to be in the new contract, Flores said.

The airline's management will likely look for the most friendly parts to the airline.

While the pay rates are similar for workers in the two airlines, America West flight attendants get more sick time and medical coverage, Flores said.

Work continued as usual at Charlotte/Douglas International Airport Thursday evening. Some employees said they learned of the announcement from reporters. None were surprised.

Connie Enright, a US Airways customer assistance representative, said, "You can't help but feel positive."

She and a co-worker wondered how the merger would affect their seniority and pay but said they viewed the news as good.

"Someone's investing a lot of money in this airline," Enright said. "You have to look ahead with hope."
May 20, 2005. 06:55 AM
Air Canada buys stake in airline
$75 million stake in US Airways may lead to more moves
Maintenance division could be spun off as separate unit

Air Canada has agreed to invest $75 million (U.S.) in US Airways Group Inc. and America West Holdings Corp., two American-based airlines that agreed to merge late yesterday, a move observers say may signal Air Canada's intention to spin off its technical services division.
The money invested by Air Canada's parent company, ACE Aviation Holdings Inc., represents about 7 per cent of the $1.5 billion worth of equity raised by US Airways and America West, which said last night that they would be known as US Airways.
The investment is contingent on US Airways' exit from bankruptcy protection, its second insolvency since 2002, and could face similar complications to those faced by Air Canada when it merged with Canadian Airlines International Ltd. and tried to merge employee seniority lists.
In a statement, ACE Aviation president Robert Milton said the investment was an "exciting opportunity."
As a condition of its investment, ACE Aviation obtained an assurance that it would be awarded five-year contracts involving US Airways's maintenance services, ground handling, regional jet flying, network, and training. The contracts would be worth as much as $1.5 billion (Canadian) over the five years, Air Canada said.
Trailing only labour costs, jet fuel is typically the second-largest expense incurred by an airline, and with oil prices skyrocketing in recent months, narrowing the margins of daily flight operations, refitting and maintaining aircraft has become an increasingly lucrative part of the airline industry.
For Air Canada, which recently signed a five-year, $300 million (Canadian) contract with Delta Airlines Inc. to service nearly one-quarter of its planes — a deal analysts said might generate as much as $30 million worth of profit — the maintenance services commitment announced yesterday should bolster the value of Air Canada's maintenance division.
The Montreal-based unit is formally known as Air Canada Technical Services, has 3,600 employees and, as a result of the US Airways contract, will as soon as next year generate $1 billion (Canadian) in revenue with less than 50 per cent being earned from Air Canada.
"Getting more maintenance contracts makes it a more valuable stand-alone company," said a source familiar with Air Canada's investment. "You don't just look at it as a case where it's just being propped up by Air Canada-related work."
Air Canada in recent months has been considering whether to buy some of UAL Corp. unit United Airline's maintenance assets, more evidence that Air Canada would spin off the technical services division, the source said.
The Toronto Star first reported news of Air Canada's possible investment in US Airways on April 26. The Wall Street Journal reported this week that Air Canada was considering whether to invest $100 million to $150 million (U.S.) in US Airways and America West, which will become the U.S.'s Number 6 airline in terms of traffic.
The amount Air Canada ultimately invested in US Airways, however, was at least 25 per cent less than Air Canada officials initially considered. A source close to the airline said Cerberus Capital Management Inc. had reservations about the planned investment.
The maintenance contracts Air Canada will win should be a boon to its operations in Winnipeg, where the company currently services Airbus planes in a facility that can handle as many as seven jets at a time.
Bay Street analysts said before the merger announcement that there was a "substantial overlap" in aircraft types in the fleets operated by Air Canada, US Air and America West. For instance, Air Canada flies and maintains 112 Airbus narrow body A319/320/321 jets. America West operates 87 of those models, while US Airways operates 115.
Air Canada said it would provide all available outsourced maintenance, repair and overhaul services for the merged entity with a combined fleet of 361 aircraft, and would obtain better access to gates at U.S. airports.

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Airline mergers dubious
Observers unconvinced deals will solve woes

The Atlanta Journal-Constitution
Published on: 05/21/05
Bankrupt US Airways and struggling America West face a steep, long climb before they can expect to reap benefits from their planned merger.

That much, most industry experts agree on.

The US Airways-America West merger would create a new sixth-biggest carrier. Here are the top airlines as measured by revenue passenger miles, or one passenger flown one mile, for the first quarter of 2005:

Airline, RPMs

American, 32.3 billion

United, 26.8 billion

Delta, 24.5 billion

Northwest, 18.2 billion

Continental, 16.2 billion

Southwest, 13.2 billion

US Airways, 9.7 billion

America West, 5.7 billion

JetBlue, 4.4 billion

Alaska, 3.9 billion

AirTran, 2.5 billion

Frontier, 1.6 billion

Note: Excludes regional subsidiaries and contract partners

Source: Staff research

Whether the airlines' deal, announced Thursday, will bring a wave of consolidation in the troubled airline industry is more open to debate.

"If we are going to live in a world of $50 [per barrel of crude] oil ... consolidation makes perfect economic sense," said Vaughn Cordle, a United Airlines pilot who also runs AirlineForecasts, a Washington consulting firm.

He says the airline industry has roughly 10 percent too much capacity — roughly the size of the combined US Airways and America West — because of a permanent downward shift in fares, and the merger could trigger much-needed shrinkage.

Long term, he speculates, the industry could see marriages between Delta and Northwest, Continental and United, and American and Alaska airlines, based on how their route structures would complement each other. For instance, Delta's eastern U.S. and European and South American routes would fit with Northwest's central U.S. and Asian routes, he said.

However, Cordle added that the U.S. Department of Justice probably wouldn't approve any of those mergers unless the carriers were already in bankruptcy court.

Airline consultant Ron Kuhlmann argues that past airline mergers have been so problematic that few carriers are likely to try them, at least not on a large scale.

"Realistically, who's going to buy who at this point?" asked Kuhlmann, vice president of Unisys R2A Transportation Management Consultants in Oakland, Calif. "There's just nothing on the horizon that seems to make the situation any better."

Delta, he said, has "their plate full" with trying to avoid bankruptcy.

He said most past airline mergers have failed because the companies had difficulty combining disparate corporate cultures, operations and work forces with differing wages, work rules and union participation. US Airways, a traditional hub-and-spoke carrier concentrated on the East Coast, and discount carrier America West likewise face those challenges, and will begin operations with heavy debt, he added.

"I think they've got an uphill battle ahead of them," he said.

Some Wall Street analysts see more positives in the US Airways-America West deal, which is less of an acquisition than a combination designed to attract new capital.

"We are tentatively inclined to view the proposed transaction as a positive for America West, as well as for the broader airline industry," Fulcrum Global Partners analyst Susan Donofrio said Friday in a report. Calling the airlines' complicated financing package "quite an achievement in light of the difficult operating and financial challenges facing the industry," Donofrio said the deal bodes well for other struggling airlines' efforts to raise capital.

The deal will be financed with $1.5 billion in new money from several backers, including US Airways' creditors, aircraft maker Airbus, regional carriers and other suppliers. The deal requires the approval of U.S. Airways' bankruptcy judge and federal regulators, among others.

JPMorgan analyst Jamie Baker said the two airlines are probably overestimating the revenue boost they expect from combining US Airways' Eastern-based network with America West's routes in the West.

However, the merger is a "modest positive" for other airlines, he said, since the carriers plan to retire 58 aircraft from their combined fleets, reducing their capacity by 8 percent and overall industry capacity by about 1 percent.

That could be a "welcome break" for AirTran Airways in particular, he said, if most of the merger's reduced flying comes out of the East Coast and America West's Las Vegas hub, where AirTran is also concentrated.

AirTran's shares jumped 21 percent this week — more than other airlines' — closing Friday at $9.69.

Delta executives have not encouraged the notion that mergers will sweep the industry. Chief Executive Gerald Grinstein told shareholders this week he doesn't foresee such a trend. And according to The New York Times, Delta Senior Vice President James Whitehurst recently told the paper a US Airways-America West deal would be like tying together sinking ocean liners, adding, "The combined ship sinks faster."
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