US Airways, America West in Merger Talks

MONTGOMERY, Ala. – US Airways Group Inc. and America West are in advanced discussions to merge, creating a national low-cost airline that would better compete with discount rivals and complement each other geographically, US Airways’ chairman said Tuesday night.

Bankrupt US Airways has discussed a merger with several rival carriers, but negotiations with America West have progressed the farthest, Chairman David Bronner said in an interview with The Associated Press.

Talks “probably started in earnest a few months ago,” but no deal is imminent, said Bronner, who also serves as CEO of the Retirement Systems of Alabama, which invested $240 million in the company.

“A lot of things will happen in the U.S. airline industry in the next 12 to 18 months,” Bronner said. “We’ll do whatever we need to survive.”

A spokesman for America West Holdings Corp., America West’s parent, declined to discuss what he called a “market rumor.”

US Airways, based in Arlington, Va., has been in Chapter 11 bankruptcy protection since September 2004. It was the second such filing in two years for the nation’s seventh-largest carrier.

High oil prices and low fares have exacerbated the difficulties of US Airways’ bankruptcy reorganization, he said, with the company needing alternatives to help compete when it leaves court protection.

“What (US) Airways is looking for, and this doesn’t mean this will go through, but it’s looking to be able to expand its network – meaning that it’s very big in the East and has very little on the West Coast,” Bronner said.

Consequently, America West was a good potential merger partner because of its West Coast focus and low-cost carrier status – factors Bronner noted also could give any merger proposal a better chance of navigating federal antitrust review.

“If we picked a different airline that we compete with on a daily basis … that would be a much harder sell” (to regulators), Bronner said.

Any merger would be subject to the approval not only of the companies’ boards, but also US Airways creditors, regulators, and the U.S. Bankruptcy Court, which also would review any other proposals “that happen to show up,” Bronner said.

The Wall Street Journal reported that the US Airways-America West talks are dubbed “Project Barbell” in reference to the fact that US Airways’ routes are concentrated on the East Coast and America West serves mostly the West. Each offers transcontinental flights, but not many compared to their larger competitors.

Bronner said the leadership at America West was another important factor propelling negotiations.

Executives who run the airline “are more than happy to go back to playing golf as opposed to running an airline that is extremely difficult,” Bronner said, calling America West managers “extremely capable people … that are well-respected in the industry.”

America West, based in Tempe, Ariz., got a $429 million commercial loan backed by $380 million in federal guarantees shortly after the 2001 attacks. But the company has found it difficult to return to profitability, because of the high jet fuel costs.

The company is scheduled to report its quarterly earnings on Wednesday.

Bronner said the carriers would continue discussions in coming weeks to determine the best deal for both companies and employees.

“It will continue on as a process,” Bronner said. “There’s a lot of things to be hammered out, a lot of meetings to be had, a lot of things that need to be improved … then it will go to both boards and they’ll see if they really want to do it or not.”