United Airlines and US Airways saw their first attempt at marriage foiled earlier this decade by the deal's high cost coupled with stiff...
CHICAGO — United Airlines and US Airways saw their first attempt at marriage foiled earlier this decade by the deal’s high cost coupled with stiff opposition from lawmakers, unions and consumers.
This time, a proposal for them to combine could face an easier route to approval in Washington, D.C., where the last bid died in July 2001. But first it has to get past unhappy pilots and other obstacles that could ground any bid to create the world’s largest airline.
The two carriers are in advanced talks to join forces, scrambling to respond to the threat posed by the proposed Delta-Northwest mega-carrier. No agreement is assured, and either airline could walk away to seek another partner or an alliance instead.
Industry experts say United-US Airways would be an imperfect union — a deal fraught with risk but one that makes some sense competitively.
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However, it’s not seen as nearly as good a fit route-wise as the failed try at a combination between United and Continental Airlines — and US Airways still hasn’t resolved pilot seniority and other loose ends from its acquisition by America West in 2005. Also, sky-high fuel prices and an expected decline in air-travel demand could limit any savings.
“There’s a lot of operational risk there,” said Roger King, an airline analyst for CreditSights. “None of this stuff is going to help them tomorrow — it’s all long-term, revenue-enhancing possibilities. But it would give [an expanded] United the largest domestic footprint of any airline.”
United unveiled the first plan to couple with US Airways on May 24, 2000, bidding to dramatically increase its presence on the East Coast, strengthen its entire network and nearly triple its daily flights.
The proposed $4.3 billion acquisition quickly ran into turbulence amid opposition from the airlines’ rivals, labor unions, Congress, consumer groups and state attorneys general, many of whom complained it would create a dominant airline that limited competition, particularly in the Washington, D.C., area.
Economic realities of the airline industry, which was struggling even before the attacks of Sept. 11, 2001, also made the deal’s price tag increasingly exorbitant. By the time the Justice Department formally rejected the deal after 14 months, United already was moving to try to call it off.
This time, the industry consensus is that a United-US Airways combo has a much better chance to be approved by federal regulators, along with Delta-Northwest, especially in light of questions about the future financial health of both carriers.
Just in case, though, the rush is on to put together a deal that could be signed off on before a new administration takes over in January.
Morningstar analyst Brian Nelson sees the two carriers as likely needing to make some divestitures in areas where they overlap to be approved.
Their overlay of hubs also would be looked at closely. United has hubs in Chicago, Denver, Los Angeles, San Francisco and Washington’s Dulles International Airport, while US Airways has primary hubs in Charlotte, N.C., Philadelphia and Phoenix and secondary hubs in Las Vegas, New York, Washington’s Reagan National Airport and Boston.
“It’s difficult to say how much scrutiny there will be on this because the landscape is in constant flux as carriers are trimming capacity across the board,” Nelson said.
“It just seems that United is searching for anybody at this point, and I think that speaks potentially to their financial position.”