Allegis to Sell Part of Reservation System to USAir, 4 Foreign Lines
Allegis Corp., the parent company of United Airlines, said Monday that it will sell 49.9% of its computerized reservation system to USAir and four European airlines for just under $500 million.
Allegis, which will change its name back to UAL Inc. later this month, will retain control of the system through its Covia Corp. subsidiary, which will hold 50.1%. (The company’s name was UAL for many years but was changed to Allegis in 1987.)
The sale will be the final divestiture following Allegis’ decision last November to return to being basically an airline company, rather than a travel conglomerate. Allegis has already disposed of its Hertz car rental business and the Hilton International and Westin hotel chains. The company said last year that it was seeking a buyer for up to half of the reservation system.
Specifically, Allegis will form a joint venture called Covia Partnership, which will own and operate the Apollo computer reservation system. United Airlines will continue to own all of Covia Corp.
The transaction is of particular importance to USAir, which owns Piedmont Airlines and plans to integrate it during 1989 and which recently finished merging Pacific Southwest Airlines into its system. USAir, which is the only large air carrier that does not own or share in the ownership of a computerized reservation system, is the nation’s fifth- or sixth-largest airline in terms of the revenue it expects to earn this year, between $5.4 billion and $5.5 billion.
According to Airline Economics Inc., a Washington consulting firm, the ownership of a reservation system is a key characteristic required for an airline’s survival in the post-deregulation environment.
The European carriers that will be part of the consortium are Alitalia, British Airways, KLM Royal Dutch Airlines and Swissair. USAir, Swissair and British Airways each purchased 11.33% of the system for more than $113 million each; KLM bought 10% for $99.81 million and Alitalia, 6% for $59.8 million.
Selected Partners Carefully
The Apollo system receives $1.85 for every plane, hotel, car rental or other reservation made through it. The participating carriers will get a percentage of the revenue equal to their proportionate share of ownership.
“We have selected our partners carefully and strategically,” said Stephen M. Wolf, chairman and president of Allegis. “This partnership will build on Covia’s strengths by providing capital and resources that will allow Covia to continue to be a leader in the development of new products and services.”
What Allegis will do with the proceeds remains to be seen. A company spokesman said Monday that no decision had been made.
Paul Karos, airline analyst with the First Boston investment house in New York, said shareholders “might get riled up” if Allegis retains the proceeds from the sale and does not pay them out to the shareholders. If the company keeps the money, he said, it “could use it to pay down debts and save on interest.”
Allegis has distributed to shareholders the proceeds of its three earlier divestitures. When it announced the restructuring, it promised that that is what it would do with the money from the sales of subsidiaries.
“Steve Wolf has a problem,” said Jeffrey R. Perry, transportation analyst with C. J. Lawrence, Morgan Grenfel, a New York brokerage. “He would like to have the money to grow the company and improve earnings. That will benefit shareholders. But he has significant guidelines of what was to have been done with the money by the previous regime.”
Perry estimated that the transaction will net the corporation about $360 million after taxes and said there is a “50-50 chance” that the shareholders will get a cash payout. If they do, he predicted, it will be about $17 a share.
