USAir Group's $400-million acquisition of Pacific Southwest Airlines cleared its final hurdle late Sunday night when 3,800 Teamsters-represented employees of PSA ratified contract modifications that USAir had demanded as part of its proposal.
The vote to accept the modified contracts was conducted during the past two weeks at PSA's various work locations along the West Coast and was completed just minutes before a midnight deadline Sunday, after which USAir had threatened to walk away from the deal.
The votes, compiled at a Los Angeles hotel, were close only in the case of PSA's mechanics, who approved their contract by a narrow 388-377 margin. PSA's flight attendants, station agents and reservations agents overwhelmingly ratified modified contracts. All four classes of workers belong to the Teamsters Union, but each has a separate contract.
USAir, based in Arlington, Va., hopes to complete its acquisition of San Diego-based PSA by May 29, according to spokesman David Shipley. He added that USAir will operate PSA as a separate, wholly owned subsidiary until its operations are merged with those of USAir sometime next year.
PSA Chairman and Chief Executive Paul C. Barkley on Monday described the acquisition as a "tremendous opportunity for PSA and its employees."
The Teamsters vote represented a major victory for USAir in its bid to acquire PSA and establish an immediate presence on the West Coast. The two airlines announced in December that they planned to merge.
Several months ago, PSA's 695 pilots, who are represented by the Air Line Pilots Assn., and 50 members of two small unions approved the types of contract modifications being demanded by USAir. PSA's shareholders voted to sell the airline to USAir during an April shareholders meeting, and federal regulators have approved the merger.
However, PSA had difficulty negotiating modifications to the contracts that cover its Teamsters-represented employees. The deal almost fell apart last month when PSA and Teamsters Local 2707 failed to reach agreement before USAir's original April 30 deadline. On April 29, USAir extended its deadline until midnight on Sunday.
The modifications eliminate a provision that would have kept the Teamsters PSA contracts intact after the two airlines were merged, a provision that USAir had described as unacceptable.
Only 1,416 of USAir's 15,726 employees belong to the Teamsters Union. However, 5,300 pilots, flight attendants and mechanics belong to unions other than the Teamsters. The Teamsters' contracts with PSA are scheduled to expire when flight operations of the two airlines are merged.
The Teamsters members who voted in favor of modifying the contract differed with their leaders, who had recommended against ratifying the contract. Teamsters Local 2707 Secretary-Treasurer Marvin L. Griswold had recommended that members "vote against (the modified contract) because it means we are losing all the contractual protection we fought so hard to gain."
Had the merger attempt failed, PSA might have been forced to substantially alter the "course and scope of its business," according to documents the airline filed with the Securities and Exchange Commission.
PSA has acknowledged that it lacks the capital to compete with industry giants such as American Airlines, which recently acquired AirCal, and United Airlines, which is bolstering its flight schedule on the West Coast.
In a related development Monday, USAir said it would use the proceeds of a 10-million share public offering to repay loans taken out to finance its proposed buyouts of PSA and Piedmont Airlines.
USAir has agreed to pay $1.6 billion for Piedmont, but that deal is being held up until after the Department of Transportation holds hearings on the proposed acquisition and resolves concerns that it would be anti-competitive.
USAir would become the nation's seventh-largest airline, with 364 modern airplanes and 38,760 employees, if it acquires both Piedmont and PSA.