Keith Srakocic  /  AP file
A US Airways jetliner taxis at the Pittsburgh International Airport in Imperial, Pa. The struggling airline is in merger talks with America West.
updated 4/20/2005 3:00:11 PM ET 2005-04-20T19:00:11

US Airways Group Inc. and America West are in advanced merger discussions to create a national low-cost airline that would better compete with discount rivals and match each other geographically, US Airways’ chairman said.

Bankrupt US Airways has discussed a merger with several rival carriers, but negotiations with America West have progressed the farthest, Chairman David Bronner said in an interview with The Associated Press late Tuesday.

Talks “probably started in earnest a few months ago,” but no deal is imminent, said Bronner, who also serves as CEO of the Retirement Systems of Alabama, which invested $240 million in the company.

The merger talks between US Airways and America West could herald the start of consolidation for U.S. airlines, although Bronner conceded that such a combination faces numerous hurdles.

“A lot of things will happen in the U.S. airline industry in the next 12 to 18 months,” Bronner said. “We’ll do whatever is necessary to survive; we’ll examine a number of different alternatives.”

A combined US Airways-America West would be better able to compete with discount rivals and complement each other geographically, Bronner said.

Bankrupt US Airways Group Inc. is planning to emerge from court protection later this year, but its reorganization has been complicated by high fuel prices that have decimated the industry’s already-battered finances. As a result, US Airways has approached several rivals about a combination, but the discussions with America West have moved along the most, Bronner said.

A spokesman for America West Holdings Corp., America West’s parent, declined to discuss what he called a “market rumor.”

US Airways, based in Arlington, Va., has been in Chapter 11 bankruptcy protection since September 2004. It was the second such filing in two years for the nation’s seventh-largest carrier.

A good merger partner
America West was a good potential merger partner because of its West Coast focus and low-cost carrier status — factors Bronner noted also could give any merger proposal a better chance of navigating federal antitrust review.

“If we picked a different airline that we compete with on a daily basis ... that would be a much harder sell” [to regulators], Bronner said.

Any merger would be subject to the approval not only of the companies’ boards, but also US Airways creditors, regulators, and the U.S. Bankruptcy Court, which also would review any other proposals “that happen to show up,” Bronner said.

The Wall Street Journal reported that the US Airways-America West talks are dubbed “Project Barbell” in reference to the fact that US Airways’ routes are concentrated on the East Coast and America West serves mostly the West. Each offers transcontinental flights, but not many compared to their larger competitors.

Bronner said the leadership at America West was another important factor propelling negotiations.

US Airways executives “are more than happy to go back to playing golf as opposed to running an airline that is extremely difficult,” Bronner said, calling America West managers “extremely capable people ... that are well-respected in the industry.”

America West, based in Tempe, Ariz., got more than $400 million in commercial loans backed by $380 million in federal guarantees shortly after the 2001 terror attacks. The airline also received concessions from employees, but has found it difficult to return to profitability, because of high jet fuel costs.

Bronner said the carriers would continue discussions in coming weeks to determine the best deal for both companies and employees.

“It will continue on as a process,” Bronner said. “There’s a lot of things to be hammered out, a lot of meetings to be had, a lot of things that need to be improved ... then it will go to both boards and they’ll see if they really want to do it or not.”

Separately Wednesday, America West Holdings Corp. said it swung to a profit in the first quarter after a year-ago loss. Net income totaled $33.6 million, or 62 cents per share, for the January-March period versus a loss of $1.6 million, or 4 cents per share, a year ago. Total operating revenue increased 11.3 percent to $722.6 million from $649.3 million last year.

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