Bids could challenge US Airways merger
 

OBSERVER IN DEPTH

Bids could challenge US Airways merger
Competing bidders would likely seek just pieces

TONY MECIA AND STAN CHOE
Staff Writers
Charlotte Observer

With US Airways and America West working to cement their merger, industry experts say other airlines could soon float offers to buy parts of US Airways.

Few would likely want to bid on all of US Airways, which has its fleet, maintenance bases and airport gates mainly up and down the East Coast, analysts say. Rather, they probably would seek only its most valuable assets -- lucrative takeoff and landing slots at crowded New York and Washington airports.

Michael E. Levine, a former airline executive and now a Yale University law professor, says he thinks major airlines might bid for the slots. "That package of (Washington) slots would be of enormous value to American, or Delta, if they can scrape the financing together."

With slots at Washington's Reagan National and New York's LaGuardia airports, airlines could replace US Airways' profitable shuttles between the nation's capitals of government and finance.

Few would likely want to bid on the rest of US Airways' network, except if Southwest wanted more gates in Philadelphia, analysts said.

Mike Boyd, an industry consultant in Colorado, pegs the chances at better than 50/50 for a rival bid to emerge.

In an interview Tuesday with the Observer, America West Chief Financial Officer Derek Kerr said the company believes its proposal will emerge on top. He said he hasn't heard of companies assembling competing offers.

"We believe there could be somebody who could come out there and do something," Kerr said. "Any bid you would see would be more for pieces" of US Airways. Creditors, he said, would also be hard-pressed to sign onto another deal.

The key to submitting a better bid for US Airways' assets, analysts say, is wooing US Airways creditors by making a sweeter offer. Typically, the bankruptcy process is designed to recoup as much money as possible for creditors. In this case, US Airways and America West have crafted a deal they say accomplishes that goal while preserving jobs and allowing creditors to continue supplying the airline.

Indeed, many of the biggest creditors have already signed on to the America West deal.

They include Airbus, which plans to put in a $250 million loan in exchange for jet orders; and General Electric Co., which would take back planes and lessen its risk.

The Air Transportation Stabilization Board, the federal panel that is backing nearly $1 billion in loans to the two airlines, has yet to sign off on the deal.

The ATSB will likely favor the America West offer, said Helane Becker, a transportation analyst and managing director of The Benchmark Co. With the two airlines planning to merge, the ATSB would have the opportunity to consolidate the two loans and restructure them in taxpayers' favor, she said.

"If I were the ATSB, I would be wildly thrilled," she said.

At a bankruptcy hearing next week, US Airways is seeking approval for bidding procedures. Though billed as a merger, America West is in effect buying US Airways for $119 million, while assuming a large portion of the company's debt. More than $1 billion in outside investment from hedge funds and vendors is fueling the deal.

The new company would be known as US Airways and be based outside Phoenix at America West's headquarters.

The fate of the deal is crucial for Charlotte, US Airways' largest hub, which is home to 5,600 of the airline's 24,000 workers. If the merger falls through, it puts US Airways at renewed risk of liquidation. If it succeeds, Charlotte could remain a major hub for years to come.

Under guidelines proposed by US Airways, bidders would have until the end of June to submit competing offers, which is little time to assemble a complex financing deal.

After a bid is entered, US Airways would choose the best offer on the table, which would require approval from the bankruptcy judge.

If regulatory approvals fall into place as expected, the deal would close by September or October.

ATA, AirTran and Southwest

Unexpected, competing bids have struck the airline industry in bankruptcy court before.When ATA Holdings Corp. filed for Chapter 11 bankruptcy protection in October, it did so with a deal in hand with AirTran Airways Inc.

The two announced an $87.7 million agreement that would give AirTran all of ATA's 14 gates at Chicago Midway Airport, as well as valuable slots at Washington Reagan and New York LaGuardia airports.

But Southwest Airlines quickly swooped in with its own bid. It offered $117 million in cash and financing, though for different lineup of assets. It wanted six Midway gates, a Chicago maintenance hangar and a 27.5 percent ownership stake in ATA.

AirTran decried the bid as a "clever trick" by Southwest to eliminate competition at Midway. But in December, ATA, its creditors and a bankruptcy judge all sided with Southwest's bid.

In addition to rival bids, the airlines face other potential obstacles, including unrest by labor groups and approval from antitrust regulators, a bankruptcy judge and shareholders.

On Tuesday, the airlines' chiefs were in Washington meeting with lawmakers.

America West Chief Executive Doug Parker and US Airways CEO Bruce Lakefield met with Sens. Rick Santorum, R-Pa., and John McCain, R-Ariz., as well as Republican U.S. Rep. Sue Myrick of Charlotte on Tuesday.

Myrick said the executives briefed her on their plans for integrating the airlines. She said she offered to help, but they did not ask her to intervene on their behalf with federal agencies that will review the merger, such as the Justice Department, which oversees antitrust issues, and the ATSB.

Parker and Lakefield have meetings set with lawmakers, regulators and the ATSB this week.

Biggest Assets

Here's what US Airways thinks some of its top assets are worth, and what prices they would likely get under abnormal conditions, such as an auction. Figures are from an appraisal done in September.

Takeoff and landing slots at Reagan National and New York LaGuardia: $462.2 million (fair market value); $346.7 million (at an auction)

Aircraft and engines: $160.6 million; $121.4 million

Inventory, such as engine blades, plane lavatories, nuts and bolts: $154.3 million; $61.7 million