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Southwest to Purchase Low-Fare Morris Air : Airlines: The nearly $129-million stock-swap deal would expand the carrier’s fleet and its Western destinations.

TIMES STAFF WRITERS

Southwest Airlines announced Monday that it has agreed to buy fellow low-fare carrier Morris Air in a stock-swap deal, currently valued at nearly $129 million, that would give Southwest more planes and greater reach into the West.

The merger would also benefit travelers by cementing low prices in cities where Morris Air’s competition has forced the big carriers to cut fares, industry analysts said.

Acquiring upstart Morris Air, which first took flight nine years ago as a charter operation but started regularly scheduled service only a year ago, marks something of a course change for Southwest. The Dallas-based airline has preferred to grow by expanding its route system rather than through mergers; it suffered one of its few money-losing episodes when it bought Muse Air in 1986.

But the tiny--though profitable--Morris Air, which approached Southwest about the deal two months ago, was just too good to pass up, said Herbert D. Kelleher, chairman and chief executive of Southwest.

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“This is a very pro-competitive, pro-consumer combination of the two carriers, and we’re looking forward to good things from it,” Kelleher said at a news conference.

Southwest’s earnings would not be diluted by the merger because Salt Lake City-based Morris is expecting a record profit in 1993, he said. Privately held Morris earned $5.3 million last year on operating revenue of $116 million.

Former travel agent June Morris, founder and primary stockholder of the airline, is selling because of health reasons and “future business concerns,” the company said in a statement.

Morris, 62, was recently diagnosed with breast cancer and, although her prognosis is good, she and her 73-year-old husband want to slow down and spend more time with their family, company spokesman Tom Kelly said. In addition, Kelly said, the airline had become large enough to be interested in the sort of financial backing represented by Southwest.

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“This is not something that had to be done,” Kelly said. “If Southwest had not had any interest, I don’t think we would have continued” looking for a merger partner.

Under the proposal, Southwest would buy all of Morris for 3.57 million shares of Southwest’s common stock. Based on Monday’s $36 closing price on the New York Stock Exchange--where enthusiastic traders pushed the value up $2 a share--the deal is worth $128.7 million.

But the transaction would ultimately be valued by the stock price when the deal closes, which is expected to be Dec. 31.

Consumers probably wouldn’t notice the change initially as the two carriers gradually meld, but the merger would lock in low prices in cities served by Morris Air, industry analysts said.

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However, Southwest has not ruled out the possibility of discontinuing service to some of Morris’ 22 Western U.S. destinations if the routes are not profitable.

Southwest might drop service to smaller cities where the passenger demand cannot support at least four flights a day, analysts said. But service between larger cities might be increased.

“It’s good news for the residents of Los Angeles because they can expect cheap fares to Boise, Seattle and Portland,” said David Hoppin, an airline industry consultant.

Some analysts worried that Southwest might face potential problems absorbing Morris at the same time it is carrying out an ambitious growth plan it has planned for next year.

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But Kelleher dismissed such concerns, saying Morris is a near perfect match with Southwest because the carriers use the same type of airplane, have no overlapping routes and even have very similar corporate cultures. In fact, June Morris used Southwest as a model to build her airline.

Kelleher also described the merger as “a little bit preemptive” to competition because it would allow the airline to instantly expand as several newcomers are beginning to encroach on its low-fare, low-cost turf. Most major airlines are contemplating or have already begun their versions of Southwest-like service.

A spokesman for United Airlines said the proposed merger is “further proof that United must conduct its business differently. Consumers have stated in the clearest of terms their demand for low fares, which in the case of United will require it to reduce its costs.”

“Everybody is emulating it,” said David Ulmer, vice president at Roberts & Associates, an airline consulting firm in Hayward, Calif. If Southwest “nails down the Western U.S. and Pacific Northwest . . . that preempts the other potential low-fare-style carriers in these markets.”

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Terms of the Deal

Here is the Southwest Airlines-Morris Air merger at a glance.

* Morris will receive 3.6 million Southwest shares currently valued at $128.7 million

* The merger is expected to increase Southwest’s earnings per share

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* Acquisition is expected to be completed Dec. 31

* Southwest will add 21 Boeing 737-300 jets to its fleet

* Morris’ 22 destinations include Boise, Denver, Las Vegas, Los Angeles, Oakland, Orange County, Portland, Salt Lake City and Seattle

* Southwest will honor Morris Air reservations

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* Most of Morris’ permanent employees will be hired by Southwest


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