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United Discusses Deal to Purchase America West

Airlines: UAL unit seeks to protect its market in the West. Acquisition would escalate a growing merger trend.

January 21, 1999|JAMES F. PELTZ | TIMES STAFF WRITER

UAL Corp.'s United Airlines, looking to protect its turf in the West, said late Wednesday that it has approached America West Airlines of Phoenix about buying the smaller airline in a deal likely to approach $1 billion.

If completed, the takeover of America West and its parent company, America West Holdings Corp., would escalate a small but growing merger trend among the handful of remaining major U.S. airlines. And the trend is fueling critics' assertions that the airline industry is increasingly becoming anti-competitive and harmful to airline travelers.

"This is a disaster for everybody except the investors" of America West, said Michael Boyd, president of Boyd Group, an aviation consulting firm in Evergreen, Colo.

Neither United, the nation's largest airline, nor America West had any further comment on their potential merger, including possible terms. However, America West said it's been "contacted by a number of airlines" interested in a merger or other alliance, which means America West might get more than one bid.

In fact, America West Chairman William Franke told Bloomberg News last week that the airline also was willing to talk to Delta Air Lines Inc. about a possible alliance or combination.

America West has a current market value of $882 million, based on Wednesday's closing stock price. Earlier Wednesday, as reports surfaced about the United advance, America West's stock jumped $1.38 a share to close at $19.50 in New York Stock Exchange composite trading.

America West, with 1998 revenue of $2 billion and 12,000 employees, is the ninth-largest U.S. airline and serves more than 90 cities in the United States, Canada and Mexico.

Its major hubs are in Phoenix and Las Vegas, and it serves Los Angeles, Burbank, Orange County and other California cities. America West Holdings also owns Leisure Co., which operates tour packages.

United's interest in acquiring the airline comes only two months after United's archrival, AMR Corp.'s American Airlines, agreed to buy the regional carrier Reno Air for $124 million.

That deal is part of American's effort to bolster its presence in the West, especially in the face of United's shuttle operation in California and other Western states.

In any case, Boyd said a United buyout of America West would mean job cuts for employees, reduced service in Phoenix and Las Vegas, "and we would have one less competitor" that would give consumers fewer choices in the Western market.

United's disclosure came only hours after America West reported the highest fourth-quarter and full-year earnings in its 17-year history, excluding one-time charges.

The results marked the latest twist in America West's seesaw performance of the last few years. After emerging from bankruptcy reorganization in 1994, the airline ran into widespread operating problems in 1996 that eroded its earnings.

America West bounced back from that, then struggled anew last year with reliability and labor problems. As a result, its stock price has plunged 40% since June.

Shares of United and most other major airlines fell sharply Wednesday. UAL dropped $2.88 a share, to $61.19, on the NYSE.

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