February 20, 1999
ALPA, Intl
Committees
The offer is said to be contingent on certain
prior union approvals, a hurdle experts say could be challenging, at best. And, beyond the
union approval, there is a likely antitrust challenge from the Justice Department and the
issue of Continental Airline’s first right of refusal to purchase a majority of
America West voting stock. “The standard feeling is that this is just the beginning.
There are legal hurdles, board hurdles, competitive hurdles and regulatory hurdles, before
this can be consummated,” said Bill McGlashen, president of the local flight
attendant’s union in Phoenix.
News of United’s offer appeared Friday in the Wall Street Journal, but the story
did not name a price and attributed much of the information to “people familiar to
the matter.” Representatives of both airlines would neither confirm the offer nor
comment on the development. On Jan. 20, the airlines acknowledged that they were engaged
in conversations involving a possible merger. America West Chairman William Franke was
said to be huddling Friday with Doug Parker, the chief financial officer, and several
board members, although details of the meeting were not available. The company reportedly
has two weeks to respond to the offer. Meanwhile, the price of America West was up 2 �,
or 13.8 percent, Friday. The stock closed at 22 �.
James Higgins, an analyst for Donaldson, Lufkin & Jenrette, speculated in a report
Friday that a per-share price in the mid $20s appeared reasonable for America West,
although he acknowledged a bid near $30 might be possible. America West has about 40
million shares outstanding. At Friday’s closing price, the transaction would be worth
about $1 billion.
Some analysts doubt whether the deal can be put together at all. Higgins drew attention
to the significant hurdles facing a possible transaction and concluded, “Not only
would a merger with America West be costly and dilutive, but it may not leave the acquirer
any better off strategically than if nothing had happened.” Madison Walton, a
representative for the United Airline Pilots Association, which represents about 9,600
United pilots, said the union had no knowledge of any offer, nor had it been able to
confirm its validity. However, he said he “assumed” it was true.
He said the company has assured the union that any deal would be contingent on any
labor issues being resolved beforehand. While he acknowledged that the union has no such
official bargaining position in its contract, he was confident the company would abide by
its word. “The employees are the major stockholders of the airline and the pilots
hold an important position,” Walton said.
In Phoenix, Airline Pilots Association spokeswoman Yvette Freeman also said the union
had no advance knowledge of any offer and also had been unable to confirm the report. The
pilots union adheres to a strict seniority system. Both Freeman and Walton agreed that any
deal would have to include merging the seniority lists at the two master executive
councils, or union locals, to the satisfaction of the pilots. “We would want to make
sure our pilots would not be adversely affected by the joining of the two lists,”
Freeman said.
Pilots for both America West and United Airlines are represented by the Airline Pilots
Association, although each has its own master executive councils. The flight attendants at
both airlines also share the same union, the Association of Flight Attendants. Jeff Zack,
a spokesman for the union in Washington, D.C., acknowledged that seniority would be an
issue in putting the groups together, but added that he thought any differences could be
overcome. “They can get along and do what needs to be done,” he said.
But Zack said any deal would have no effect on the status of the flight
attendants’ contract negotiations in Phoenix. The union represents about 2,400
America West flight attendants and is in the middle of an impasse in contract negotiations
with the company. A 30-day cooling-off period expires March 19. The union said it will go
on strike sometime after that, if no agreement is reached. “We intend to keep
bargaining,” he said. “Once they start talking, these mergers can take years.
Our members need a contract they can live with during that period.”
While the same union represents the flight attendants at both airlines, there are vast
differences in the pay and benefits between the two. “Everything is better at
United—the pay and the work rules,” Zack said. He noted that American West
flight attendants earn $15,000 to $22,000 and at United they earn $18,000 to $46,000. Also
taken by surprise by the offer, according to a story from the Bloomberg news service, was
investor David Bonderman. His TPG Partners Ltd. own a bock of Class A Shares that carries
49 percent of the voting rights for America West. Bonderman helped bail the airline out of
its financial problems in the early 1990s and is now looking for an exit strategy.
It has largely been Bonderman’s interest in selling what amounts to a controlling
stake in America West that has prompted the takeover talks. While Bonderman’s stake
is thought be worth about $50 million, a stipulation in the financing agreement dictates
that any buyer must also acquire the rest of the airline. Muddying the waters is the fact
that Continental Airlines holds a first right of refusal to buy Bonderman’s stock,
should a firm offer materialize.
Dave Messing, a spokesman for Continental Airlines in Houston, said that company would
“do whatever is in the best interest of its employees and stockholders.”
Continental earlier expressed an interest in acquiring America West, but said last week
that it would not pursue such an action. Delta Airlines, which is said to have looked
closely at a possible deal, took itself out of the running earlier this week. But while
Continental said it is not pursuing a formal bid, at least one source said it could jump
into the fray if America West were to accept an offer from United. Such an action could
spark a bidding war.
A final factor is possible antitrust violations. A merger of America West and United
would give the new entity more than 40 percent of the domestic market west of Denver.
“We strongly suspect the Department of Justice would take exception to such a
concentration,” Higgins said. One way to get around the potential labor problems and
possible Justice Department challenge would be to operate America West as an autonomous
subsidiary instead of absorbing it. Analysts say such a scenario would be easier if
Continental were the buyer and not United. They said United’s union may require
pilots of a subsidiary to be merged into their seniority roster.
| AmWest Gets United Offer, Report Says Deal Could Stall in Complexity by Max Jarman, The Arizona Republic |
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| A reported cash offer by United Airlines to buy America West Airlines could be the first step in a process that could take years to complete, analysts said Friday. |