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By David Noonan
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The industry that gave the world the jumbo jet has another big idea--the jumbo airline. United Airlines wants to buy US Airways in a $4.3 billion deal that would make it the largest carrier in the United States by far, with 500,000 passengers traveling on 6,500 flights a day. Executives pushing for the combination call it a perfect fit--United's cross-country East-West routes and US Airways' North-South routes along the East Coast would give travelers a range of new options. They even promised not to raise ticket prices for two years.
But the megadeal ran into heavy weather as soon as it was announced last week. It met resistance from pilots and politicians, and industry experts who say a skeptical Justice Department is going to X-ray it like a giant piece of carry-on luggage. Despite the doubts about the ultimate success of their merger, James E. Goodwin, the chairman of United, and his counterpart at US Airways, Stephen M. Wolf, sounded confident as they unveiled their plan. Wolf called it "a milestone in aviation history," and Goodwin said they hope to have government approval by early next year. "These are very savvy folks, and they understood going in that they could expect formidable obstacles to clearing a deal like this," says aviation lawyer Kenneth Quinn, of the firm Winthrop, Stimson. Goodwin and Wolf's savviest move so far is a plan to sell most of US Airways' operations at Washington's Reagan National Airport to Robert L. Johnson, the founder of Black Entertainment Television. The deal-within-a-deal heads off some of the government's antitrust concerns and creates the country's only minority-owned airline, DC Air, at the same time.
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But that may not be enough to satisfy the Justice Department, which has two concerns: the details of the United-US Airways merger itself, which it fears would reduce competition in key markets around the country, including Washington, D.C., and Chicago; and the possibility that approval of the deal would trigger a rash of other mergers that could shrink the number of major U.S. airlines from seven to as few as three. There are subtle hurdles to clear as well, including all the opinion makers who regularly use the US Airways shuttle service and will pay extra-close attention to any deal that might inconvenience them.
United's 10,000 pilots, who as a group own about 25 percent of the stock of United's parent company, UAL, and are currently negotiating a new contract, could also steer the merger off course. They are worried about maintaining their seniority when they join ranks with US Airways pilots. The United pilot leadership is meeting in Chicago this week to scrutinize the deal. Finally, United's chief competitor, American Airlines, is also in a position to muck up the works by launching a rival bid. Or it could pursue a deal with another airline, which would put the heat on United by making the Justice Department even more nervous about mergers. So much for the friendly skies.
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