Union Problems May Scuttle USAir-PSA Merger : Teamster Protests Loom Large as Deadline Nears; Piedmont Deal in Jeopardy

Thursday is the deadline for the merger of USAir Group and Pacific Southwest Airlines and, if Teamsters union objections are not resolved, the combination might not take place.

“When April 30 rolls around,” David H. Shipley, a USAir spokesman, said, “we’ll walk away from the transaction if no agreement has been reached.”

And the problem with the proposed $400-million PSA merger, plans for which were announced in December, is not USAir’s only current difficulty. Its planned $1.65-billion combination with Piedmont Airlines of Winston-Salem, N.C., is also in jeopardy. The government maintains that that consolidation, announced last month, might stifle competition on many of the routes now served by both carriers.

Airline analysts say that the USAir/Piedmont merger is the more important of the two from USAir’s standpoint. And PSA, they say, could survive if its merger with USAir falls through and could continue to give its higher-cost competitors a run for their money, though perhaps it would have to reduce the level of its service.

Formal Hearings Ordered

Should USAir’s Piedmont deal fail, though, the consequences would be more serious.

The U.S. Department of Transportation has given USAir, headquartered in Arlington, Va., approval to buy as much as 51% of Piedmont’s stock and put it in a voting trust pending a final government decision on the merger. But the department has also ordered formal hearings on the deal because several states have filed protests, citing competitive concerns.

“I think Piedmont is a much more important story (than PSA) for USAir,” analyst Anthony Hatch of Argus Research Corp. of New York said. “If it did not go through, it would be a disaster,” because, he said, neither Piedmont nor USAir is big enough nor strong enough to battle larger carriers and survive.

Hatch said the USAir/PSA combination, even if it takes place on schedule, would be in danger of losing market share at first and that other airlines would seize the lost business. “What is the USAir name in California?” he asked rhetorically. “American and AirCal (who are close to completing their proposed merger) is a pretty potent combination; so is the beefed-up United and the Delta-Western combination.”

The analyst also said that, because of the three-hour time difference between USAir’s Pittsburgh hub and the West Coast, there would be poor utilization of aircraft, with many of USAir’s flights from the East arriving too late to connect with most PSA flights. On the other hand, PSA would provide USAir’s largely Eastern routes with a feed of passengers from the West Coast.

Whatever its weaknesses, the deal is threatened altogether by the union problem. USAir insisted at the outset that PSA’s unions agree to modify the “successor clauses” that give the unions representational rights after any merger.

All of the unions except the Teamsters have come to agreement with PSA. The Teamsters, too, in recent days, have agreed to modify the successor clause in their contract but have insisted on new contract modifications involving creation of a fund to help Teamsters who might lose jobs because of the proposed merger.

Trading in PSA stock was halted Monday morning for about half an hour when the airline announced that the Teamsters had made a new proposal, according to PSA spokesman Bill Hastings. However, neither the airline nor the union would describe the proposal.

Failure to complete the merger would not mean the end for PSA, “but we would have to have a different look,” Hastings said, referring to the airline’s previous announcement that, without a merger, it might have to substantially alter the course and scope of its business.

Those changes could involve a realignment of PSA’s route structure, a “lowering and restructuring of its costs,” and possibly, a halt of service to one or more cities, according to recent filings with the Securities and Exchange Commission.

If USAir’s mergers with both Piedmont and PSA are eventually carried out, the result would be a significant airline with a fleet of 364 modern aircraft and 38,760 employees. Had the three carriers been one in 1986, they would have flown 55.2 million passengers on 2,896 daily departures.

But the new carrier would still lack several important competitive tools: a major computerized reservation system, a mid-continent hub to tie its East and West Coast operations together and overseas routes to feed from its wide-ranging domestic routes.

“To sum up, the acquisitions of PSA and Piedmont make USAir a larger carrier,” said John V. Pincavage, airline analyst with the New York’s Paine Webber brokerage, “but don’t ensure its survival against the other big competitors.”