America West Holdings and a group of investors would buy bankrupt US Airways in a bid to compete with low-cost rivals under a merger plan announced on Thursday.
Using around USD$1.5 billion in new capital, the deal would save US Airways from possible failure and expand the reach of America West in lucrative eastern markets for business travel in Washington, New York and Boston.
The new airline would become the sixth-biggest domestic carrier and would use the US Airways name but be headquartered in Tempe, Arizona, America West's home turf. The transaction would begin with a marketing alliance and unfold in stages -- taking up to three years to complete.
"A combined US Airways/America West places the new airline in a position of strength and future growth that neither of us could have achieved on our own," said Doug Parker, America West's chief executive.
Cost savings will come in part from layoffs and cutting 60 planes. "We certainly don't need as many employees as exist today at the two companies," Parker told reporters.
The carriers said the deal would create a carrier with USD$10 billion in annual revenues and about USD$2 billion in total cash. They hope to close the transaction this autumn.
Parker said the new airline would be healthy enough to make money even with oil prices at USD$50 per barrel. Record fuel prices have been blamed for staggering industry losses, including the USD$282 million US Airways posted in the first quarter.
The deal is the first big airline combination since American Airlines gobbled up TWA in 2001, and the most dramatic in a series of moves by big carriers to survive the industry's worst ever downturn.
Arlington, Virginia-based US Airways and America West said they would initially operate separately and create a marketing alliance to coordinate scheduling and frequent flier programs before gradually moving to combine operations.
Financially stable with USD$33 million in first-quarter profits, America West has been eager to grow and take on bigger carriers and low-cost rivals like Southwest Airlines that are healthier.
"They've bitten off a tremendous project in this case," said Stuart Klaskin of KKC Aviation Consulting in Miami. "If they fail, nobody will be surprised. But if they succeed they'll be the darlings of the industry."
America West launched service in 1983. It currently operates 924 daily departures system-wide. The company employs 13,000 people and has hubs in Phoenix and Las Vegas.
US Airways has been in business for 65 years, going through a number of transformations. It operates 3,400 daily departures system-wide and employs 30,000 people. US Airways has hubs in Charlotte and Philadelphia. It operates the East Coast shuttle between Washington, New York and Boston.
The deal must be approved by antitrust and transportation officials but industry experts did not foresee serious regulatory hurdles.
Additionally, the federal board overseeing USD$1 billion in combined loan guarantees to both airlines must approve the deal as does the judge overseeing US Airways bankruptcy case.
America West would own 45 percent of the new airline, new equity partners would own 41 percent and 14 percent would go to US Airways, assuming a total private equity value of USD$850 million, the carriers said.
The new airline's 13 member board would have one member from each of three new equity investors, six members from the America West board, including Parker as chairman, and four members from the current US Airways board, including Bruce Lakefield, current US Airways chief executive, as vice-chairman.
