United Airlines considers buyout of USAir

  • @dusborne
United Airlines sent tremors through the aviation industry last night when it announced it was considering a buyout of USAir, the smaller east coast carrier in which British Airways has a 24.6 per cent stake.

While confirming that it was exploring the possibility of a merger, United Airlines indicated it still had a long way to go before making a decision on a final bid. USAir confirmed, meanwhile, that preliminary discussions had taken place with United, but also with American Airlines, the largest of the US airlines

Based in Chicago, United is already the second-largest carrier in the US. By combining with USAir, which has a strong presence on the east coast, it could leapfrog American Airlines.

There was no indication last night of how individual stockholders in USAir might react to such a bid. The company is the sixth-largest in the US and recently surprised analysts by indicating it expects to make a pre-tax profit this year after several years of heavy losses.

If the buyout were to proceed, British Airways could be the given the option of a stake in United Airlines, although any share in the company would be smaller than its near-quarter stake in USAir. Other stakeholders in USAir include Fidelity management funds and billionaire investment guru Warren Buffett.

Earlier this year, Mr Buffett, whose investment vehicle is the Berkshire Hathaway group, declared his dissatisfaction with USAir's failure to negotiate large enough concessions from its unions and wrote down his $385m investment in the airline to $89.5m. That move may now become something he regrets.

Last month, USAir's long-time chief executive, Seth Schofield, announced he was retiring from the company. In the last two years, Mr Schofield trimmed $1bn in costs from the carrier by cutting on routes and its workforce. He never succeeded in attaining all the union concessions he sought.

Until the recent profits prediction, BA had been reported also to be pondering reducing its stake in the company. BA has three members on USAir's 16-seat board and over the last two years has integerated its trans-Atlantic routes with USAir's domestic route system.

United Airlines had been gaining in strength in recent months in the wake of an employee buyout of the company last year. In trading yesterday, the shares of UAL, the parent company, hit a 52-week high of $172 3/4.