Continental to Face a Hurdler on America West

February 5, 1999

ALPA, Intl

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UAL
Corp.’s United Airlines has confirmed it is in talks to acquire Phoenix-based America
West. Delta Air Lines is also in early talks with America West, the ninth-largest airline.
Continental, however, holds a right of first refusal to acquire the investor group’s
49% voting stake and has indicated it would exercise that right before America West fell
to a rival carrier.

Speaking yesterday to the Goldman, Sachs & Co. Air Carrier Conference, America West
Chairman William A. Franke said TPG Partners LP, an investor group led by Mr. Bonderman,
has informed the company it would support a takeover only if the acquirer bought all of
the company’s Class A and Class B shares.

TPG owns 941,431 Class A shares, which carry 50 votes each, giving it control of 49% of
America West’s voting rights. Continental owns the remaining 158,569 Class A shares,
or 8% of America West’s votes. In New York Stock Exchange composite trading
yesterday, America West Class B shares fell 31.25 cents to $21.125.

Continental has insisted it could take control of America West by acquiring only
TPG’s Class A shares, a transaction analysts estimate at $50 million or less. Buying
the entire company is expected to cost more than $1 billion.

People involved in the talks say TPG’s stance is designed to force Continental,
which has a marketing alliance with America West, to join the bidding for the entire
company or drop out. Ironically, a standoff would pit Continental against Mr. Bonderman, a
former Continental chairman who resurrected both Continental and America West from
bankruptcy reorganization.

Spokesmen for Mr. Bonderman, America West and United declined to comment. Continental
said it stood by an earlier statement that it would “act in the best interests of our
employees and shareholders.” United concluded after discussions with TPG that there
are several ways it could still acquire America West, people involved said. For example,
if TPG converted its Class A shares to Class B shares, which it can do at any time,
Continental’s right wouldn’t give it control. Mr. Bonderman was criticized when
his Air Partners LP sold its Continental Class A shares to Northwest Airlines last year
while rejecting a bid from Delta that included acquiring both Class A and Class B shares.
Now, according to one person close to the financier, Mr. Bonderman “wants all
shareholders to be treated equally.” United, considered to be the leading potential
bidder, is conducting its due-diligence investigation of America West with assistance from
its investment banker, Goldman Sachs, a person familiar with United said.

The company hopes to finish its investigation within a few weeks and decide whether or
not to proceed, according to this person. Although an acquisition would face tough
antitrust scrutiny, a person with knowledge of United said the Chicago-based carrier
hasn’t yet begun testing the waters with regulators in Washington. A combination of
the nation’s largest carrier and America West would give United 42% of the West Coast
market and hubs blanketing the West in Denver, Los Angeles, San Francisco, Phoenix and Las
Vegas. A potential deal also would have to be approved by either United’s pilots, who
own 25% of UAL and have a seat on the company’s board, or members of the Machinists
union, who own another 20.4% of UAL and also have a board seat. According to UAL’s
bylaws, at least one of the two union directors would have to approve the acquisition. If
both opposed it, UAL would have to walk away from the deal. United, which is interested in
America West as a way to expand its fleet and protect its West Coast franchise, had $815
million of cash and short-term investments as of Dec. 31. It easily could finance an
America West purchase, but isn’t expected to pay with UAL shares. United employees
own more than 55% of UAL and don’t want their stake diluted.