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. Last Updated: 07/27/2016

United, US Airways Create Merger Plan




WASHINGTON -- United Airlines, the world's largest carrier, has agreed to acquire US Airways for $11.6 billion in a deal that would create a giant airline with nearly twice the number of flights as its nearest competitor, sources familiar with the negotiations said Tuesday night.


The plan includes the sale of most of US Airways' routes at Reagan National Airport to Robert Johnson, founder of Black Entertainment Television. His new airline, to be called DC Air, would be the United States' first minority-owned airline.


United's takeover, which was approved by the boards of directors of both airlines Tuesday, also would end the latest chapter in the career of US Airways chairman Stephen Wolf, 58, who has made his mark in the industry rescuing troubled carriers. Wolf is not expected to remain with the combined airline.


All of US Airways' operations at Dulles International Airport and Baltimore-Washington International Airport would be taken over by United and all of US Airways' 46,300 employees below top management would be guaranteed jobs, sources close to the deal said.


The agreement, according to sources, also includes a two-year freeze on all of United's domestic fares other than adjustments to reflect increases in fuel prices and the U.S. Consumer Price Index.


If the deal is completed, the US Airways name would disappear from the skies.


The acquisition must be reviewed by the Justice Department's antitrust division. The deal with Johnson, a member of the US Airways board of directors, is seen as a way to help allay government concerns about the overall merger.


Still, in an era in which consolidation seems to be refashioning every U.S. industry, the merger between two prominent airlines was expected to trip deep regulatory inspection while intensifying debate about the domination of certain "hub" markets by major carriers.


US Airways is the United States' sixth-largest, and its routes dominate the eastern half of the country. The acquisition of the Arlington, Virginia-based US Airways would give United a major passenger feed for its transatlantic routes. The merged airline would have hubs coast to coast and about 6,500 daily flights, nearly double that of American Airlines, the nation's second-largest carrier.


As of Tuesday, United was the No. 1 airline in the world ranked by employees and revenue, but only No. 9 in market value.


United is primarily an east-west airline, while US Airways primarily flies north-south routes. United said the acquisition would add 560 routes.


Some industry experts predicted the merger would never pass muster with the government, and even if it did it could take years for the deal to be completed.


Clark Onstad, a former Federal Aviation Administration general counsel who also has been an airline executive, said United's bid will spark opposition and probably a scramble for advantage by American Airlines.


United has agreed to pay $60 a share for all US Airways stock, a 131 percent premium over yesterday's closing price of $25.93 3/4.


A potential beneficiary of the United acquisition would be financier Julian Robertson, the biggest single shareholder in US Airways Group with nearly a third of the company's stock.


In the past year, US Airways has been on a major spending spree, buying Airbus Industrie jets in an effort to rationalize and modernize its fleet. It was unclear last night whether United would continue US Airways' Airbus contract.


Also uncertain is what will become of Metrojet, US Airways' low-cost airline-within-an-airline, which is based at Baltimore-Washington International. United will gain the Metrojet routes, but it is uncertain whether United will use Metrojet as the basis for a new shuttle operation similar to its low-cost West Coast operation. United might choose to abandon Metrojet, ending US Airways' ambitious plan to go head-to-head with Southwest Airlines.