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NEWS ANALYSIS

2nd Time Around for United-US Air

Airlines: Planned merger will face same labor concerns that thwarted a deal in 1995. That's on top of antitrust hurdles.

May 25, 2000|JAMES F. PELTZ | TIMES STAFF WRITER

Anyone analyzing whether United Airlines' parent, UAL Corp., can actually complete a planned $4.3-billion buyout of smaller rival US Airways Group Inc., a proposal the carriers confirmed Wednesday, might do well to revisit what happened between the two airlines 4 1/2 years ago.

UAL was looking to buy US Airways at that time, too, but UAL's then-chairman, Gerald Greenwald, got an earful from United's powerful labor force that they wouldn't back the deal. So it was scrapped.

Now, UAL's new chief executive, James Goodwin, is trying again to acquire US Airways and make United--already the world's biggest airline--into an industry behemoth with more than 6,500 daily flights worldwide, more than 145,000 employees and $27 billion in annual revenue.

But once again, labor could be the biggest stumbling block to completing the deal, even more so than the antitrust concerns that undoubtedly will be raised by U.S. and foreign airline regulators, or the possibility of competing offers.

In fact, the enormous complexity of melding two airlines' employees--who typically are unionized and very concerned about keeping their seniority, wage levels and other benefits intact within the merged carrier--is the main reason airline combinations seldom occur.

American Airlines was hobbled in early 1999 when, after buying tiny Reno Air, angry American pilots staged a weeklong sickout in protest.

The issue is even more prominent at UAL, because the pilots and other employee groups own a combined 55% of the company's stock and have seats on UAL's board of directors.

"The pilots are the ones who will determine whether or not this thing works," said Terry Trippler, who runs 1Travel.com, a Minneapolis-based travel site that focuses on air fares.

"Now remember, we're talking about the cockpit; we're talking about big egos here," he said. A key sticking point, he added, will be how the issue of pilots' seniority is handled in a combined company.

So while some analysts suggest that a UAL-US Airways marriage could open the door to a wave of additional airline mergers, or that all this consolidation could lead to higher ticket prices for travelers, all of that speculation might be premature until it becomes clear that the employees of United and US Airways are on board with this merger.

Yet already labor's unease is apparent. No sooner had UAL and US Airways announced their deal than the Air Line Pilots Assn., the union representing United's 10,000 pilots, expressed its "strong concerns" about the deal. And it chastised UAL for inking the pact before "reaching full agreement with the United pilot group on all issues."

US Airways, an amalgam of airlines merged together in the 1980s, also has had its share of labor strife, although within the last year it has signed new contracts with its mechanics and flight attendants.

The antitrust issues, meantime, are not small, by any means. Travel experts and others criticized the deal on two main grounds: That ticket prices undoubtedly would go up because there are already only about 10 major U.S. airlines, and that any strike or work stoppage at such an enormous airline--the combined carriers would have hub airports at eight major cities, including Los Angeles--would severely affect not only the U.S. travel system but the whole economy.

"Airline managements today are not concerned with the consumer as much as they're concerned with their damned stock price," said Michael Boyd, who heads Boyd Group, an aviation-consulting firm in Evergreen, Colo. "There would be fewer options, less competition," and ultimately the merger would be "to the detriment of the consumer," he said.

"We're going to eliminate an airline and, if we have reduced competition and prices do not go up, it will be the first time in history that that will happen in the free-enterprise system," Trippler said. Plus, a strike "could really cripple the country," he said.

Analysts also noted that speculation is mounting that Northwest Airlines and Continental Airlines might merge if this deal goes through. Northwest and Continental already have a far-flung alliance whereby Northwest owns a 51% voting stake in Continental.

Yet the Justice Department sued those two airlines 18 months ago on grounds that the pact was anti-competitive, although the agency did not block the deal from going forward by seeking a restraining order or injunction.

Regardless, analysts said the fact that the Justice Department is still reviewing that alliance likely means that actual mergers between UAL-US Airways, Continental and Northwest or any other big airline combinations might not pass muster.

Jennifer Rose, spokeswoman for the Justice Department's antitrust division in Washington, said: "We're aware of the transaction and we will review it closely."

Wall Street also had concerns about the merger. Amid suggestions that UAL is paying too much for US Airways with its cash offer of $60 a share, UAL's stock plunged $7.19 a share on Wednesday to $53.19.

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