<B>AA-TWA Deal To Close</B>
By David Jonas
Trans World Airlines last week sidestepped remaining stumbling blocks in its effort to fold into American Airlines as a federal bankruptcy judge denied motions to stay the sale of the carrier's assets to AA parent AMR Corp. The denial of requests made by at least four parties and new labor agreements paved the way for rapid closure of the transaction as early as last Friday.
Meanwhile, the U.S. Department of Justice continues to gather information related to the proposed merger between United Airlines and US Airways. Once that process is complete, regulators will inform the carriers, which then will begin a 21-day preparatory period leading to the closing of that transaction.
DOJ now is scrutinizing American Airlines' proposed transactions that would be an element of, and a competitive factor in, the United-US Airways combination (BTN, Jan. 15). It also has been soliciting comments from corporate travel managers.
"DOJ is touching base with customers, and once they tell us they have all the information they need, we'll start the process. We are ready to go," said Joe Laughlin, United vice president of North America sales. An integration team already has been established and is growing by the day. Laughlin told BTN it includes roughly 50 people on the reservations side and 20 in sales.
Should the merger proposal, either as currently structured or modified further, receive DOJ's blessing and avoid potential pitfalls presented by numerous proposed congressional bills, the carriers still must work to settle contentious labor issues.
United's flight attendants, for example, last week overwhelmingly voted in favor of a strike should the carrier pursue the purchase without first securing a contract waiver. Their union, the Association of Flight Attendants, said random and unannounced work stoppages would occur throughout the system following DOJ approval and a completed transaction. AFA reaffirmed that its strike threat cannot be subjected to a Presidential Emergency Board, similar to the one created in the Northwest Airlines mechanics dispute, because completion of the merger without a waiver violates their contract.
United president Rono Dutta confirmed that the carrier also is in talks with the mechanics union, which has raised its own slate of merger-related concerns.
Meanwhile, US Airways chairman Stephen Wolf, who recently told congressional leaders the carrier cannot survive on its own, contradicted recent company forecasts, according to the leader of that carrier's pilots union. "He is comparing this company with such defunct carriers as Eastern to pursue a merger," said Captain Chris Beebe, US Airways Master Executive Council chairman, noting earlier growth forecasts from $9 billion to $12 billion by 2004.
Echoing those sentiments, UBS Warburg airline analyst Sam Buttrick said, "US Airways thought the company was sufficiently viable a year or year-and-a-half ago. There is no imminence to their failure." However, Buttrick maintained his odds, giving the merger a 65 percent chance for approval.
A third front United-US Airways is fighting is in the consumer sector, where disgruntled passengers don't expect larger entities to improve already poor customer service and performance.
"Continuing decline in industry service quality should be regarded as a primary reason to oppose the current mergers and acquisitions being proposed," concluded the recently published National Airline Quality Rating (see story, page 6). "There is little reason, either managerially, competitively or fiscally, for the country to support industry consolidation without clear considerations regarding pricing, better airline cooperation, consumer service concerns and the loss of competitive options."
As TWA was, and is, undeniably a failing carrier on the verge of a shut-down, its acquisition by AMR Corp. differs greatly from the proposed United-US Airways combination. Judge Peter Walsh of the U.S. Bankruptcy Court in Delaware, in denying several stay motions to his March 12 decision to allow AMR's purchase of TWA, said, "The mere allegation that an alternative transaction is possible does not establish that the offer accepted by TWA's board is not the best and highest offer." He added that "the record is devoid of any evidence that the objecting parties would be better off if I issue a stay pending appeal." Stay requests were filed by TWA's unsecured creditors, former TWA chief Carl Icahn and others.
With those requests tossed out, American in court on Friday was hoping to make official its $742 million purchase. TWA, strapped for cash, also is hoping for closure as quickly as possible. Kathleen Soled, TWA senior vice president and general counsel, said, "As a result of the financial stress of operating under bankruptcy court protection, TWA's cash position and overall financial situation remain precarious," but she noted the transaction is "in the home stretch."
Details of the Friday court hearing were not available at press time.
Once finalized, AMR Corp. will operate TWA as a limited liability company and a wholly owned subsidiary. TWA's pilots and mechanics unions last week both reached transition agreements with TWA Airlines LLC, smoothing the way to the closing of American's acquisition of TWA.
However, relations with American's own labor groups have not been as smooth. Leaders of three unions--the Allied Pilots Association, the Association of Professional Flight Attendants and the Transport Workers Union--jointly sent American chief Don Carty a letter stating they do not support the purchase of TWA's assets. Concerns over benefits, job protection and career expectations were cited. While the unions cannot block the purchase, labor groups across the industry, both past and present, have demonstrated their ability to slow airline M&A activity throughout the sector.
Carty wrote back, stating, "The AA-TWA transaction has been widely recognized as a significant positive competitive opportunity. It allows us to keep pace with United and grow faster than we could have grown on our own."
Meanwhile, TWA immediately suspended nonstop service between New York JFK and Tel Aviv, a route American indicated would be cut after the closing of the transaction.