US Airways and America West Airlines appear to be just days away from announcing plans to merge, industry analysts say.
The airlines' parents, US Airways Group Inc. and America West Holdings Corp., acknowledged last month that they had been discussing a merger.
Kevin P. Mitchell, chairman of the Radnor, Pa.-based Business Travel Coalition advocacy group, said he expects the airlines to make an announcement in the next few days. Ray Neidl, an analyst with Calyon Securities in New York, said he anticipated an announcement by next week.
Spokesmen for the airlines would not comment this week about when an announcement would be made.
Putting the companies together would create the sixth-largest U.S. carrier, potentially making it a tough, low-cost competitor to Southwest Airlines, now No. 6.
But analysts say the deal faces big hurdles, starting with a need to raise $500 million in new equity investment, including the $250 million that US Airways already has arranged from two regional airlines to help it come out of Chapter 11 bankruptcy protection this summer. A merger agreement would need to provide a Bankruptcy Court exit plan for US Airways, the analysts said.
America West, which is in better financial shape than US Airways, would most likely be the acquiring company, but the new entity would probably use the better-known US Airways name, analysts said.
Any agreement would require approval of the companies' boards and controlling shareholders; U.S. Bankruptcy Court Judge Stephen Mitchell, who is overseeing US Airways' case; the federal Air Transportation Stabilization Board, which guaranteed post-Sept. 11, 2001, loans to both airlines; labor unions that represent the vast majority of employees at both airlines; and General Electric Co.'s aircraft-financing unit, which owns jets leased to the carriers.
Both airlines fly Airbus and Boeing jets and would probably use a merger to reduce the number of older planes they fly.
Another potential obstacle to a deal, noted last month by Robert Ashcroft, an analyst with UBS Securities in New York, is how Southwest would respond -- especially given that it has vowed to grow at Philadelphia airport if it can get more gates. Two-thirds of the airport's gates are controlled by US Airways, mostly under leases that expire June 30, 2006.
Ashcroft said Southwest not only would be a fierce competitor on fares and service, but might also try to spoil an America West-US Airways deal by bidding on US Airways assets. When AirTran Airways tried to acquire gates at Chicago's Midway International Airport last year from ATA Airlines, Southwest stepped in and outbid it in Bankruptcy Court.
"We think (Southwest) wants Philadelphia every bit as much as it wanted Midway," Ashcroft said in a report to investors.
Among the other challenges of merging two unionized airlines is how to integrate the work forces. Pilots and flight attendants traditionally have been able to choose their work schedules based on seniority. US Airways pilots have an average of 17 years seniority, while America West has been in business only since 1983, and has a younger work force.
A combined company could face morale problems if any large group of employees didn't believe it was treated fairly.
"Pilots especially are very territorial with their seniority," said Roger King, an airline analyst with CreditSights.
Hanging over the discussions is the condition of the airline industry. All carriers' profitability is in jeopardy this year because of high oil prices, while revenue is weak because fares are lower than they have been since the early 1980s.
Most experts say that for the industry to make money again, one or more big airlines will need to go out of business, or merge with others, as a way to reduce capacity, or the number of airline seats available for sale each day.
The Business Travel Coalition's Mitchell said consolidation is a "rational approach to the industry's problems." But, with America West and US Airways, "unless there are some very significant cost savings, I can't see it as being a real plus," because it wouldn't reduce industry capacity enough.
Wall Street analysts are widely pessimistic about US Airways' survival beyond this year without its joining forces with another carrier. The most optimistic thing that CreditSights' King could find to say about combining the airlines was that it could be a "way of liquidating US Airways in an orderly fashion."
