Airline confirms exploring merger
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US Airways confirmed Wednesday that it is studying a possible merger with bankrupt American Airlines, a move one analyst believes could have positive implications for service in Pittsburgh.
During an earnings call, US Airways Group CEO Doug Parker said the airline has hired the Millstein & Co. restructuring firm, the Barclays PLC banking and financial services company and the Latham & Watkins law firm "to explore our options" regarding the bankruptcy of American's parent AMR Corp.
While it's not imperative that US Airways consolidate, "We, of course, are always interested in studying potential value enhancing opportunities and part of these opportunities is ensuring we have good counsel," he said.
US Airways, Pittsburgh's largest carrier, has been the subject of speculation for weeks about a potential merger with American. The airline's statement Wednesday was its first public acknowledgement of possible interest in a consolidation.
Delta Air Lines and TPG Capital, a private equity firm, also are considered potential candidates for a merger with American.
The US Airways announcement came the same day the airline reported that in 2011 it earned $71 million, or 44 cents per share, down from the $502 million, or $2.61 per share, it made in 2010. Tempe, Ariz.-based US Airways attributed the decrease largely to much higher fuel prices.
The company reported net income of $18 million, or 11 cents per share, in the fourth quarter compared to $28 million, or 17 cents per share, in the same quarter a year ago. Revenue climbed 9 percent to $3.16 billion.
Mr. Parker said that US Airways is strong enough now that it "does not need to participate in consolidation" and can control its own destiny. "We can decide whether it's best for US Airways to operate as a standalone company or participate in further consolidation over time and that's what we intend to do."
Mr. Parker said he expects American to remain in bankruptcy for a while. As a result, US Airways and its advisers "will be studying the situation for quite some time."
"While we are studying the situation, we do not expect there will be any major developments and we certainly have nothing to report today," he said.
But William R. Lauer, a local airline analyst and a principal in Sewickley-based Allegheny Capital Management Inc., believes that Mr. Parker is engaging in a "little bit of a ballroom dance" in insisting that US Airways can make it on its own without further consolidation.
He said American is suffering because it's losing lucrative business travel to Delta, which acquired Northwest Airlines, and the merged United-Continental airline. US Airways is facing the same issues.
"The same kind of competitive pressures ... certainly affect US Airways," he said. "Without the stability and predictability of all of this corporate business, the legacy hub and spoke networks don't operate very well."
At the same time, Mr. Lauer believes a US Airways-American merger actually could benefit Pittsburgh. He sees potential for the new airline moving at least some traffic from congested and inefficient Philadelphia International Airport to the region.
"If landing fees can come down, I think there are a lot of reasons to believe a consolidated route network would result in a moderate increase in traffic in and out of Pittsburgh," he said.
American currently operates 81 flights a week out of Pittsburgh International, with nonstops to Chicago, Dallas-Fort Worth, Miami and New York.
He doesn't see Pittsburgh returning to its "glory days" as a hub with more than 500 daily flights, but does believe the merged airline could add 50 to 100 flights "provided the landing fees are tolerable."
"[The airport's] available. It's convenient. It's the same set of considerations that prevailed when [former US Air CEO] Ed Colodny was building what became US Airways," he said. "The days of 500 flights a day are long, long gone, but that doesn't mean that some of the stuff out of the East Coast couldn't be diverted back."
However, the downside is that Pittsburgh potentially could lose some maintenance and even flight operations work if a merger takes place because of overlap with American's systems, Mr. Lauer said.
Offering another view was Michael Boyd, a Colorado-based aviation consultant. He does not believe a merger will add any traffic in Pittsburgh, regardless of how congested Philadelphia or the east coast is.
"Pittsburgh is well served and nobody is going to put a connecting operation there," he said. "US Airways isn't going to do it again. American isn't going to do it."
Mr. Boyd predicted that American would emerge from bankruptcy under its own power without a merger. Nonetheless, he believes US Airways is wise to study its options regarding a consolidation.
"They have to. That's good business. You have to plan for the future. ... But don't believe for a second that it's going to do anything to increase any kind of traffic out of Pittsburgh."
First Published January 26, 2012 12:00 am
