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Official word that the Justice Department and 12 states would oppose United's purchase of US Airways brought the deal to its expected end.
By Times staff and wire reports
© St. Petersburg Times, published July 28, 2001
United Airlines and US Airways called off their proposed merger Friday after the Justice Department threatened to file a lawsuit to block the deal, arguing that the proposed takeover would "reduce competition, raise fares and harm consumers" on airline routes across the country.
The government's opposition to the deal did not come as a surprise, and analysts said it seemed to indicate that antitrust enforcement in the Bush administration would not differ much from the approach taken by the Justice Department under President Clinton.
"There was a naive sense on the part of people who don't pay attention to antitrust that Republicans would differ a lot from Democrats when it came to enforcing antitrust laws," said Jeff Eisenach, president of the Progress and Freedom Foundation, a free-market research organization based in Washington.
"The challenge in the US Airways case was to see whether there was a way around some fairly substantial market power issues. What this indicates is, first, that those attempts were not successful and second, just any old merger won't fly under the Bush administration," he added.
Twelve states planned to join the Justice Department in blocking the merger. Florida was not one of them.
Shortly after the government's announcement, US Airways, a unit of the US Airways Group, said it would no longer pursue the transaction. "While disappointed that the merger with United will not go forward, we nevertheless must respect the Justice Department's decision," US Airways said in a prepared statement.
United's parent, UAL Corp., also issued a statement, saying, "UAL Corporation and US Airways have terminated their merger agreement."
Many industry experts question whether US Airways, facing severe price competition from Southwest Airlines, AirTran and Jet Blue, can long survive as an independent carrier. Labor costs at US Airways are 30 percent higher than the industry average and 20 percent higher than United's.
"Like every other airline, US Airways has to conserve cash," said Glenn Engel, an analyst at Goldman, Sachs. "That means they will probably eliminate service in non-hub cities. But there are no easy fixes for US Airways."
US Airways said in its statement that it would be "moving forward with a plan to address the competitive environment. Details of that plan will be announced soon."
Wall Street analysts said that the deal's collapse removes what could have been a financial albatross for UAL, which along with much of the airline industry is currently battling losses. At the same time, however, the loss of US Airways is clearly a crushing defeat for 57-year-old James E. Goodwin, UAL's chairman and chief executive.
"If I were him, I would get out," said Michael Boyd, president of an aviation consulting group bearing his name. "We're not dealing with a track record that looks that good."
United reached agreement last year to acquire its smaller rival for more than $4-billion in cash, plus assumed debt and leases that raised the total value of the deal to $12.3-billion. UAL said it would pay a $50-million termination fee to US Airways for ending the merger agreement.
The collapse of the deal also is disappointing to Robert Johnson, the founder of Black Entertainment Television and a member of the US Airways board. He was slated to assume ownership of a new airline, DC Air, which would have taken over US Air's routes from Washington, D.C.'s Reagan National Airport.
In January, American Airlines said it would buy 20 percent of US Air from United. In a statement issued Friday, it said the failed agreement ended its plan to buy a piece of the airline.
US Airways is the largest airline at Tampa International Airport, carrying one out every five passengers. Along with its commuter affiliate, US Airways Express, the airline has 84 daily departures from TIA.
United is a bit player locally. The airline has only 5 percent of the market at TIA and ranks No. 6, with nine departures on its busiest days.
Louis Miller, the airport's executive director and a merger supporter, said he hopes US Airways can turn around its fortunes. The airline employs about 800 workers in Tampa and 2,300 across Florida.
"Hopefully, now they can return to focusing on building its size to where it should be," Miller said. Shares of UAL's stock closed at $33.63, down 29 cents, while shares of US Airways closed at $17.26, down 89 cents on the New York Stock Exchange.
- Times staff writer Steve Huettel contributed to this report, which includes information from the New York Times, Chicago Tribune and Los Angeles Times.