USAir Group Inc., the loss-ridden parent of the nation’s sixth-largest airline, disclosed Monday that it may be acquired by United Airlines or American Airlines, the nation’s two dominant carriers.
USAir said in a statement it has held preliminary discussions with both airlines, but added it that is too early to tell whether any agreement will be reached. USAir made the disclosure amid fears that word of the talks was beginning to leak out.
USAir, which has a market value exceeding $1 billion, has a route system heavily concentrated in the East. USAir has an office headquarters in Arlington, Va., and hubs in Pittsburgh, Baltimore and Charlotte, N.C. It also serves a few California airports such as Los Angeles and John Wayne in Orange County.
If USAir is sold, it would be one of the few big airline deals since the industry went through a spree of mergers in the 1980s--many of which failed miserably. It also would come as most airlines are enjoying a strong rebound after losing billions of dollars in the early 1990s.
Indeed, the parent companies of United and American, UAL Corp. and AMR Corp., would be able to finance any deal by exchanging USAir’s stock for their own shares, whose values have risen dramatically in 1995 in tandem with the industry’s improvement.
UAL, based in suburban Chicago, confirmed the talks and called a potential merger of the airlines’ operations “intriguing.” But UAL also noted that both companies have “complex ownership” structures that make a deal difficult to achieve.
Both companies have major shareholders who would have to approve any merger. UAL, for instance, is 55% owned by its workers and is the nation’s largest employee-owned company.
At USAir, British Airways has a 22% voting stake in the airline, and another 10% voting interest is held by billionaire investor Warren Buffett through his Berkshire Hathaway Inc. A British Airways spokesman said the airline would not comment on USAir’s announcement until today. A spokeswoman for Buffett said he was traveling and unavailable for comment.
AMR, headquartered in Ft. Worth, Texas, declined comment.
Some analysts criticized the merger idea. “My immediate reaction was, ‘Why?’ ” said Tim Sieber, research director at the consulting firm Aviation Systems Research Corp. in Golden, Colo.
Among other things, Sieber said, a merger of United and USAir would create a “tremendous amount of union conflicts” between organized workers at USAir, who have been under pressure to accept wage and benefits cuts, and those at United who already have taken pay cuts in exchange for job security and big chunks of UAL stock.
Largely because USAir has among the highest operating costs in the business, the company lost a total of $2.3 billion from 1992 through 1994. USAir did say last month that it expects to report a pretax profit for 1995, but it remains saddled with more than $2 billion of debt.
The merger talks also come less than a month after Seth E. Schofield announced plans to step down as USAir’s chairman and chief executive.
On the New York Stock Exchange, USAir’s stock closed Monday at $11.625 a share, up 12.5 cents, giving it a current market value of $1.2 billion based on its 102 million fully diluted common shares outstanding. UAL rose $1.875 a share, to a 52-week high of $172.75, and AMR fell $1.50 a share, to $70.625.