Southwest Set to Buy Muse; Rival Protests

Times Staff Writer

Southwest Airlines plans to buy Muse Air Corp., the two Dallas-based rivals announced Monday, but the deal quickly drew antitrust opposition from a third competitor, Continental Airlines.

Industry observers estimated that the deal, a combination of cash and stock, is worth about $60 million, although officials of the carriers declined to reveal the price.

Southwest, a highly successful airline with a philosophy of no-frills, frequent service, low fares and aggressive marketing, said it would operate its financially ailing rival under its current name. Muse will continue with its primary marketing concept of reserved-seat, no-smoking flights.

'More Artillery'

Timothy Pettee, an analyst with the New York City brokerage firm of L. F. Rothschild, Unterberg, Towbin, lauded the consolidation.

"It gives Southwest more artillery. It can now use Muse to its benefit. In the past, the two were working against each other in pricing and marketing. They won't compete with each other in a manner harmful to either."

Houston-based Continental said the merger would give Southwest-Muse a virtual monopoly at Dallas' Love Field and Houston's Hobby Airport. They said Continental would ask the Department of Transportation to block the deal unless the combined airline agreed to sell some of the gates.

Muse, with 850 employees, operates 11 planes serving 11 cities in five states. In California, it offers service to San Jose, and between Los Angeles and Las Vegas, and Los Angeles and Houston, Austin and Midland-Odessa in Texas.

Southwest, with about 4,000 employees, operates 53 jets and has another 29 on order. It serves 24 cities in 11 states. It flies routes between Los Angeles and 17 other cities, with 256 arrivals and departures a week at Los Angeles International Airport.

In 1984, Muse lost $17 million on revenues of $101 million; Southwest earned $49.7 million on revenues of $536 million.

The deal reunites Southwest Chairman Herbert D. Kelleher and the man he fired as Southwest's president in 1978, M. Lamar Muse. In 1981, Muse founded his namesake carrier, dubbed "Revenge Air" in the industry, and began competing with Southwest. Muse had retired, turning the company over to his son, Michael, but resuming control earlier this year when Dallas investor Harold C. Simmons provided the financially ailing airline a sorely needed $16 million in capital through his Amalgamated Sugar Co.

Under the sale agreement, Kelleher would become Muse's chairman, while Lamar Muse would become vice chairman.

The agreement provides for each of Muse's 4.64 million shares of common stock to be exchanged for $6 in cash, one-eighth of a share of Southwest common stock and one-eighth of a five-year warrant to buy one Southwest share for $35.

Copyright © 2019, Los Angeles Times
EDITION: California | U.S. & World