Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: TUESDAY, November 14, 1995 TAG: 9511140099
SECTION: BUSINESS PAGE: B-6 EDITION: METRO
SOURCE: Associated Press
DATELINE: CHICAGO LENGTH: Medium
United Airlines said Monday it will not seek to acquire USAir Group Inc., the nation's fifth largest carrier, avoiding a potential bidding war for leadership in the domestic market.
The decision by directors of UAL Corp., United's parent company, was predicted by many industry analysts who said a merger would be more costly and require more worker concessions than UAL's employee-owners would tolerate.
``While our study confirmed a transaction would have significant revenue benefits from increased customer choice, we were disappointed we were unable to satisfy all the criteria we set for a potential transaction,'' UAL Chairman Gerald Greenwald said in a statement.
Among UAL's criteria were that a deal substantially boost the value of UAL stock and not impede the company's goal of attaining an investment-grade rating for its securities.
Any deal also would have needed the support of UAL's workers, and would have had to keep their UAL ownership stake at 55 percent, Greenwald said.
UAL disclosed on Oct. 2 that it was talking with USAir about a possible merger.
A decision to pursue USAir could have started a bidding war with AMR Corp., parent of American Airlines, since an acquisition of USAir would give either undisputed leadership among domestic carriers.
USAir Group said it will seek other solutions to its financial problems. The Arlington, Va.-based company's long-term debt totals nearly $3 billion, officials have said, and employees have given little support to a $1 billion effort to trim costs.
``This industry will change in the years ahead; that is inevitable,'' USAir Chairman Seth Schofield said in a statement. ``And this airline will be ready and fit to play a leading role in that change.''
The prospect of a USAir buyout had prompted comments by analysts and other observers that the U.S. airline industry was ripe for consolidation.
Acquiring USAir, valued at an estimated $8 billion to $10 billion, would have given United a stronger presence along the East Coast, including a lucrative New York-to-Washington shuttle.
But detracting factors included USAir's operating costs - the industry's highest - and the difficulties of bringing USAir employees into UAL's employee stock ownership plan.
``There's going to be a lot of costs up front with merging the different systems,'' said Brian Harris, an airline analyst at S.G. Warburg & Co.
Some United employees had expressed concern about USAir's financial troubles. The carrier reported annual operating losses from 1990 through 1994 and had a net loss of $716 million last year. UAL, based in the Chicago suburb of Elk Grove Village, made a profit of $11 million in 1994.
USAir also has talked with AMR Corp., whose American Airlines is tied with United for top ranking among U.S. carriers. AMR said last week it would not start a bidding war for USAir.
by CNB