Names Fly as Deals Change Airline Owners

Change has been the name of the game in the airline industry recently.

American Airlines Chairman Robert Crandall, who earlier discounted rumors that his airline would buy a West Coast-based regional airline, on Nov. 17 announced a $225-million deal to acquire AirCal.

The next day, Alaska Air Group Chairman Bruce Kennedy postponed a series of meetings in San Diego, re-igniting rumors that the Seattle-based airline was on the acquisition trail. On Wednesday, Air Alaska Group said it would spend $68 million for Seattle-based Horizon Air.

The frenetic pace of mergers and acquisitions also produced rumors of deals. One suggested that AirCal’s two major stockholders had offered their stock to PSA.

Not so, according to a PSA executive, who explained that a third party had suggested that the two airlines might get together to talk. The suggestion fell upon deaf ears at PSA.

Another rumor had Frank Lorenzo of Continental Airlines in the bidding for Orange County-based AirCal, a move that supposedly accounted for the full price that American Airlines paid for AirCal.

The rumors are driven by a widespread belief in the airline industry that only a handful of major carriers will survive the continuing merger and acquisition wave. Consequently, there is pressure to expand by acquisition or be acquired, according to Louis Marckesano, an airline industry analyst with Janney Montgomery Scott in Philadelphia.

“It’s not something that has to happen tomorrow, but even Piedmont and US Air (two profitable airlines that are concentrated in the East) have to be questioning their ability to stay independent,” Marckesano said.

Leading the pack of rumored suitors for PSA is Minneapolis-based Northwest, according to Marckesano and Kennedy.

Other industry rumors have TWA--if it remains viable--acquiring PSA in order to bolster its presence in the West. Similarly, Piedmont and US Air, the Eastern-based carriers, could expand their West Coast service by acquiring PSA or Alaska Air.