American Confirms Plans to Buy TWA, Assets of US Air

The prospect of only two airlines controlling half of U.S. air travel moved closer to reality Wednesday as AMR Corp., the parent of American Airlines, confirmed plans to buy Trans World Airlines Inc. and a big chunk of US Airways Group Inc. for a total of nearly $2 billion.

American’s deal follows plans by United Airlines and its parent, UAL Corp., to buy the majority of US Airways for $4.3 billion. Assuming all of the deals are completed, about 50% of U.S. passengers would be climbing aboard United and American--the largest and second-largest U.S. airlines, respectively.

And that’s heightening fears among many consumer advocates, lawmakers and travelers that more mergers will be coming, involving Delta Air Lines, Northwest Airlines and Continental Airlines, among others, as those carriers try to stay competitive.

Critics fear that having only three or four mega-carriers could stifle competition and lead to higher fares and reduced service. And in light of recent job actions by airline workers that badly disrupted air travel, opponents also fret that another labor dispute at one of these mega-carriers would virtually paralyze the U.S. air travel system.

Those are all questions that the Justice Department must grapple with in deciding whether to let any of these deals proceed. But American, United and some industry analysts contend that the mergers, in fact, will benefit consumers by giving them more destinations and by making the surviving airlines more efficient, which could keep a cap on fares.

AMR Chairman Donald Carty said competition would be maintained among fewer, larger airlines whose markets overlap more. “We’re not trying to eliminate competitors; we’re trying to build a network,” he said at a news conference. “Our desire is to say to our customers, ‘We can take you anyplace, any time, anywhere in the world.’ ”

Investors again indicated that the American deals will help complete US Airways’ acquisition. US Airways’ stock rose $1.69 to $44.38 a share, while AMR slipped 25 cents to $38.69 and UAL edged down 13 cents to $41.88, all on the New York Stock Exchange. TWA’s beleaguered stock, which closed at $1.32 a share Jan. 5, hasn’t traded since then after reports of the American deal surfaced.

Sen. Bryon L. Dorgan (D-N.D.), however, called for congressional hearings on the consolidation, saying three or four mega-carriers would mean “very little competition in price or service. That’s not what we envision in a free market system for consumers.”

Under the multi-part agreement unveiled Wednesday, TWA filed for Chapter 11 of the U.S. bankruptcy laws in federal court in Delaware and plans to sell most of its assets to American for $500 million in cash. American also would assume responsibility for TWA’s plane leases and provide an additional $200 million in immediate financing for the St. Louis-based carrier.

Concurrently, American plans to buy certain US Airways assets for $1.2 billion in cash and the assumption of $300 million in aircraft leases. It also would pay $82 million for 49% of a proposed new airline, DC Air, that would fly out of Washington’s Reagan National Airport.

The latter portions of the deal are contingent on federal regulators approving UAL’s buyout of US Airways, the nation’s sixth-largest airline. DC Air is intended to alleviate antitrust officials’ concerns that United would have too much control over the air traffic around the nation’s capital.

American would add TWA’s hub in St. Louis to its hubs in Dallas-Fort Worth and Chicago and greatly increase its presence in busy East Coast cities, in part by giving it half of the Boston-New York-Washington shuttle that is now operated by US Airways. The other half would be owned by United, whose hubs include Chicago and Denver. United also is the largest operator at Los Angeles International Airport.

“The agreement will protect air service in St. Louis and maintain St. Louis’ role as a major transportation center,” TWA said. “The agreement also calls for American to offer employment to almost all of TWA’s 20,000 employees.”

The deal would bring an end to the once-venerable TWA, which traces its roots to the 1925 founding of Western Air Express. Over the decades, TWA catered to popes and movie stars, once ruled the skies around the world with now-defunct rival Pan American and held the world in rapt attention during a dramatic 1985 hijacking and a 1996 crash of a flight from New York to Paris.

But TWA, the No. 8 U.S. airline, has failed to turn a profit since 1988 and has filed for bankruptcy twice before. It’s possible that had fuel prices not almost doubled last year, the airline might have finally made money.

American, meanwhile, said it will not honor an eight-year contract that gives billionaire Carl Icahn, who formerly controlled TWA, the right to buy discounted TWA tickets in exchange for a $200-million loan he made to the carrier several years ago. “We are not interested in acquiring that contract,” Carty told reporters. Icahn could not be reached for comment.

TWA’s planned purchase by American has everyone wondering when another big airline merger is coming. “I think the carrier that will be under the most pressure [to expand through acquisition] is Delta,” William Franke, chairman of Phoenix-based America West Airlines, said of third-ranked Delta. “If it does nothing, it’ll be significantly smaller than the other two.”

Delta has held merger talks with Continental and other airlines in past years but hasn’t struck any deals.

American, meanwhile, could face labor trouble digesting the large acquisitions. Its pilots held a costly sickout in 1999 to protest the carrier’s purchase of much-smaller Reno Air.

The airline must integrate TWA and US Airways pilots on American’s seniority list, which can threaten the carrier’s current pilots. Seniority determines pilots’ schedules and whether they fly as captain, co-captain or navigator. Complicating matters is that TWA’s and US Airways’ pilots belong to the Air Line Pilots Assn. and American’s pilots have their own union, the Allied Pilots Assn.

“If you take on an airline the size of TWA or any part of US Airways, there’s some shuffling of the seniority list,” said Jim Philpot, an Allied Pilots spokesman. “There are only so many seats on the left side of the cockpit”--the captain’s seat.

But Philpot said the pilots wouldn’t automatically oppose the TWA and US Airways deals. “If our corporation can be improved by this acquisition, then it’s a good thing.”

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Times wire services were used in compiling this report.