Philadelphia – US Airways and America West Airlines announced a long-anticipated merger Thursday that the companies said will create a financially strong business using fewer employees but giving consumers more travel choices.
The chief executives 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, will continue to be a major part of the operations.
But merging the workforces will 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, will create the nation’s sixth-largest airline, with $10 billion in annual revenue. The new company will use the US Airways name but will shut down US Airways’ headquarters in Arlington, Va. The combined airline’s headquarters will be in Tempe, Ariz., where America West is based.
This is the first major deal in the domestic airline industry since American Airlines bought the assets of Trans World Airways in 2001. That deal made American the industry’s biggest carrier.
Five years ago, US Airways agreed to be acquired by United Airlines, but it dropped that deal in 2001 after the Justice Department moved to challenge it in court on antitrust grounds.
The deal between America West and US Airways would be backed by $350 million in new equity from four investors.
Unlike past airline mergers, however, this deal would keep the structures of both airlines essentially intact. The airlines said they would coordinate their schedules and eventually merge their frequent-flier programs, and that members of their plans would keep their miles.
Once the deal is concluded, which the companies said could be this fall, America West’s red, white and green planes will be painted in US Airways’ colors, dark blue, white and red.
The airlines will offer more connecting opportunities for passengers who now can’t easily reach some places in the other carrier’s network, officials said.
America West chief executive Douglas Parker, who will be chairman and chief executive of the merged airline, said the new US Airways will be “the first nationwide full-service low-cost airline.” That’s a dig at Southwest Airlines, 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.
“Consumers can do what they couldn’t before because now there will be more choices in the combined airline,” Parker said.
US Airways CEO Bruce Lakefield will stay with the company as vice chairman.
Most of the immediate job losses will be among the 600 employees at US Airways headquarters in Arlington. The airline will need two to three years to fully integrate its flight operations, which means most other employees will keep their jobs for now, with any reductions coming slowly over time, Parker said.
“We won’t need as many employees as exist today …,” he said. “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 – has 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.
“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 around $50 a barrel.
The companies said they expect to finance the transaction with about $1.5 billion in new capital, including chunks from regional airlines, European aircraft-maker Airbus SAS, and by selling newly issued stock. The airlines said they expect to save $600 million a year in operating costs once they are combined.
The investment from Airbus, whose planes both airlines fly, is part of an agreement for the new carrier to be the first customer for the Airbus A350 jet. The wide-bodied 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 past four years, can emerge from Chapter 11 bankruptcy protection this 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, doubts that a combined US Airways-America West will help the airline industry’s competitive 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 doesn’t put any more passengers in the skies, he said.
The New York Times contributed to this report.
