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US Airways isn’t done with mergers yet

/ Source: The Associated Press

Though he's still merging work forces from his last airline deal, US Airways CEO Doug Parker hasn't stopped eyeing other carriers and thinking of the possibilities.

He tried to woo Delta Air Lines last year, offering $9.8 billion in a hostile bid that eventually failed. Now, US Airways is in serious talks to join forces with UAL Corp.-owned United Airlines, according to people familiar with the negotiations.

A US Airways-United combination, and the flight cuts that likely would follow, could bolster the faltering airline industry grappling with steep fuel costs. Yet industry observers wonder if Parker should be at the vanguard of the consolidation movement.

"At one level, it makes you say 'why bother finishing anything?'" said Robert Mann, an airline consultant who advised America West pilots when their airline acquired the former Virginia-based US Airways in 2005.

"They really don't have a single airline today," Mann said of US Airways. "It's really two airlines operating."

Tempe, Ariz.-based US Airways Group Inc. functions under a single Federal Aviation Administration certificate, but its flight attendants and pilots are still working under pre-merger contracts.

The pilots have had an especially rough time during the past three years. A disagreement over seniority last year led to an arbitration hearing, then a lawsuit, and then to the ouster of the Air Line Pilots Association union.

Meanwhile, pilots from the West (America West) and the East (former US Airways) have cursed each other at airports and engaged in shoving matches at hotels as each side jockeyed for position in the company pecking order.

If United joined the mix, "you'd have three sets of employees who are more or less doing the same thing, under three sets of contracts, three different work rules, flying three different sets of airplanes," Mann said.

An airline can make itself look like a united carrier on its balance sheet. But disgruntled employees have always been good at making customers aware that they're unhappy, Mann said.

"What if people start working to rule? If they don't show up to work?" Mann said.

Parker and his counterpart, United Chief Executive Glenn Tilton, haven't spoken about any merger rumors.

In a statement Tuesday, United's pilots union said a tie-up with US Airways would be "extremely negative from United's perspective."

Steve Wallach, the union leader who also sits on UAL's board of directors, said in a statement that while United has its own problems, "US Airways' problems run even deeper."

Wallach criticized US Airways' customer service record and said its seniority integration problems have created a "toxic stew" within its pilot ranks.

"We do not view a marriage with US Airways as anything remotely resembling a solution," Wallach said.

Sara Nelson, spokeswoman for United's unit of the Association of Flight Attendants, said Tuesday the group will oppose any consolidation scenario that would impede or disrupt its efforts to gain improvements for flight attendants. However, she said it hasn't taken a position on a US Airways deal.

"We know that even after an announcement, many things can change with these deals," Nelson said. "We've said consistently that we would not be making a statement supporting or opposing any deal without first fully reviewing the facts with our professionals."

If they joined forces, the carriers would compete with newly proposed Delta-Northwest for the title of world's largest airline. Together, US Airways and United accounted for 201.6 billion revenue passenger miles in 2007.

Kevin Mitchell, chairman of the Business Travel Coalition in Radnor, Penn., says he understands that the airline industry needs to find ways to offset fuel costs. But it's unfortunate that US Airways would reshuffle its operation just as it's finishing its 2005 merger.

"Right now, US Airways, they're at least trying to make some progress. You throw this on top of it, you're going to have management distraction, and time and attention away from apparent customer service problems," Mitchell said.

But analysts say there may be no better solution. United, US Airways, Delta Air Lines and Northwest Airlines Corp. are struggling with fuel expenses and lost more than $1.2 billion combined in the first quarter, excluding special items.

US Airways shares rose 34 cents, or 4 percent, to close Tuesday at $8.96 and UAL Corp. gained 12 cents, or 0.8 percent, to $14.93.

Oil prices and the slumping economy are forcing airlines to make "dramatic changes," Parker told employees earlier this month in a newsletter.

"If done properly, (consolidation) could result in a much healthier industry which would be good for our employees, our customers and the communities we serve," Parker said.

While mergers can be tough on employees, US Airways has shown it can eventually run a smooth operation. After a horrible customer service record in 2007, the carrier now sits near the top of the industry in on-time arrivals.

It's also merged a number of employee groups from the two airlines onto a single contract, built a joint reservations system and started a flight operations center in Pittsburgh.

While he wants to merge his pilots contracts, Parker said he has no problem keeping them separate. The benefits of a combined pilot group would mean maybe $10 million in savings for the airline, Parker said, not much for an airline with $11.7 billion in annual revenue.

"There is no large financial benefit that we are not receiving because we don't have one integrated pilot contract right now or one seniority list," Parker said.