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Commentary: Unfriendly Skies For An Airline Merger


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Commentary: Unfriendly Skies for an Airline Merger

With fickle spring weather snarling flights all over the country, quick takeoffs have hardly been United Airlines' strong suit lately. And now, with his May 23 plan to swallow US Airways Group Inc. for $11.6 billion, UAL Corp. chief James E. Goodwin has launched a deal that may never get off the ground. His problem: really bad timing. He may have picked exactly the wrong moment to try to cement United's market-dominating No. 1 status with what would be the nation's biggest airline deal.

The deal is likely to run into stiff--and maybe fatal--headwinds from a few major players who just now have reason to feel particularly bold. Most important, there's the Justice Dept., which is already showing a marked coolness toward airline consolidation. The trustbusters there are suing to undo Northwest Airlines Corp.'s 1998 purchase of a controlling stake in rival Continental Airlines Inc. They're also pursuing American Airlines Inc. for allegedly driving out discounters."SORT OF CLEAN." With US Airways in its pocket, United would control over half the flights at a half-dozen hub airports, including UAL's home base at Chicago's O'Hare International. It would have market shares topping 81% at Charlotte and 76% in Pittsburgh. Such figures make folly of US Airways Chairman Stephen M. Wolf's claim that "we have little to no overlap. We're sort of clean from the Justice perspective."

To be sure, Goodwin is making an attempt to ease Justice's likely worries. US Airways, for instance, would turn over gate leases and landing rights at Washington's Reagan National Airport to a member of the carrier's board. The director, Black Entertainment Television founder Robert L. Johnson, would form an upstart carrier, DC Air. But already critics are wondering just how much success a carrier led by someone with minimal airline experience might fare. "The spin-off will actually be managed by United," grouses Representative Louise M. Slaughter (D-N.Y.). "This plan would reduce competition in the skies."

But Justice has other concerns. This pact would probably trigger another round of consolidation. American might even make a counteroffer for US Airways. Both it and Delta would also have to look covetously at the likes of Northwest or Alaska Airlines. "The worst case for consumers is to get quick approval by Justice and then the other two major carriers get to do the same thing," complains Paul Hudson, executive director of Ralph Nader's Aviation Consumer Action Project in Washington.

Goodwin faces internal issues as well. United's pilots, agitating for a new contract, are already making life tough at the carrier. They've been refusing to work overtime, which has forced more than 1,000 flight cancellations since April. And these pilots, who play a big role in the largely employee-owned carrier, are kicking up a fuss about the deal. Frederick C. Dubinsky, who chairs the Air Line Pilots Assn. and sits on UAL's board, is "deeply disappointed" with the deal. The chief concern: the risk of lost seniority and lower pay. But a second union, the International Association of Machinists, backs a merger.PUBLIC IRE? Finally, consumers may also hold a trump card. Business travelers, who've been bearing the brunt of fare increases lately, are hardly likely to support more consolidation if it looks like their choices will further narrow. Low-cost rivals, such as Southwest Airlines Co., are already beating the drum to rally fliers against the pact. "We don't know who the winner will be, but we know the losers will be the traveling public," argues a spokesman. The results will likely be "fortress hubs, fewer service options, higher fares."

The rhetoric against the move is only likely to rise. For Goodwin, the din may prove as loud as a crowd of ever-more delayed fliers at O'Hare.By Michael Arndt; With Lorraine Woellert in Washington; Arndt Covers the Airline Industry from Chicago.Return to top


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