Proposed merger could mean more flights from McCarran to East Coast

By Richard N. Velotta

Friday, May 20, 2005 | 10:57 a.m.

The skies may be opening up between Las Vegas and the East Coast.

The company that calls itself "Las Vegas' Hometown Airline" confirmed Thursday that it is merging with an airline mired in bankruptcy, a move that could lead to additional flights from McCarran International Airport to eastern U.S. markets.

America West Airlines' planned merger with bankrupt US Airways is designed to give McCarran's second-busiest commercial passenger carrier a shot at giving top dog Southwest Airlines a run for its money.

Officials with parent companies America West Holdings Corp. and US Airways Group Inc. say they plan to create the first full-service nationwide airline by offering simplified pricing and low fares to more than 200 cities across the United States, Canada, Mexico, the Caribbean, Central America and Europe.

America West and US Airways, which have been in talks for weeks, announced the deal after financial markets closed. The merged company, which would fly as US Airways, will be based in Tempe, Ariz., and will continue to use Las Vegas as one of its hub operations.

The combination of US Airways and America West, the seventh and eighth largest in the nation, respectively, would vault the merged airline ahead of No. 6 Southwest. But because of US Airways' small presence in Las Vegas, Southwest will continue to dominate the local market.

In Las Vegas in the first quarter, America West served 1.7 million passengers -- 7.3 percent ahead of last year's total -- while US Airways, the No. 8 carrier at McCarran, served 303,960 passengers in Las Vegas.

America West Chief Executive Doug Parker will lead the new company. In an interview with the Sun after the announcement, Parker said the merger would have a positive impact on Las Vegas.

"If anything, it makes (growth in Las Vegas) more of a certainty because we've improved the viability of America West," Parker said.

Parker said the merger would produce more access to Las Vegas for the airline's customers. He said it's too early to project how many Las Vegas flights could be added as a result of the merger.

"There will be a number of new markets possible as a result of the merger with more nonstops to Las Vegas," Parker said.

Aviation analyst Robert Mann of R.W. Mann & Associates, Port Washington, N.Y., said today the proposal would be good for Las Vegas because it will give the city better access to "a much larger pool of loyal US Airways customers."

"It should be good for the Vegas market with far more east-west traffic," Mann said. "They (US Airways) fly to every little place as well as every big place on the East Coast."

Mann also said based on the sophistication of the investors, "you have to conclude that by the amount that they have advanced in the deal that there is a compelling case for it."

Pilot unions from both carriers are approaching the deal with caution.

"While details of the transaction continue to evolve, we remain focused on our priorities: protecting and defending the career expectations of America West pilots," said J.R. Baker, chairman of America West's unit of the Air Line Pilots Association.

"As such, we will not allow America West management to lose focus on running an efficient airline or forget their commitment of operating in the best interests of the employees," he said.

His counterpart at US Airways said pilots have contributed the most toward putting the airline in a position to make the deal.

"Our master executive council and our pilots have been called upon again and again to make the most difficult decisions in this volatile and still-transforming industry," said Bill Pollock, the ALPA council's chairman.

Some critics have panned the deal, even though the transaction is bringing $1.5 billion in new capital to the company.

"We have a business plan that makes all the sense in the world," US Airways Chief Executive Bruce Lakefield said in a press conference in Tempe on Thursday.

"Today, my company, our company, our employees at US Airways, will be in the fine, good hands of Doug Parker, whose leadership skills are among the best in the industry," he said.

But not all of those employees will be around when the merger becomes final. Parker said some several thousand of the 44,100 combined employees would lose their jobs. The company is expected to ground about 60 planes -- 15 percent of the total fleet -- and won't need 44,100 employees.

Parker said the downsizing would occur gradually and many jobs would be eliminated through attrition. Parker said he expects none of Las Vegas' 1,250 America West employees would lose their jobs.

Executives decided to take the US Airways name because it is better known on the East Coast where most of the combined airlines' customers are.

It's a different story in Las Vegas. According to McCarran statistics, America West and its Mesa Airlines partner, which operates as America West Express, have 138 daily flights to and from Las Vegas. As of April, the airline served 66 nonstop markets, the most of any carrier at McCarran.

US Airways, meanwhile, has an average 10 flights a day to three markets -- the airline's hubs in Philadelphia, Pittsburgh and Charlotte, N.C.

Parker said it's too early to determine how the merger would affect the number of flights to those markets.

US Airways has something else that America West doesn't have -- overseas flights to international destinations. Parker said it was too early to speculate on whether the merged airline would dedicate aircraft to create nonstop international routes to Las Vegas.

In addition to routes throughout the Caribbean and Latin America, US Airways currently has flights to Amsterdam, Frankfurt, London's Gatwick International Airport, Madrid, Manchester, Munich, Paris and Rome. The airline also has seasonal service to Barcelona; Dublin and Shannon, Ireland; and Venice.

US Airways has a powerful East Coast network, one of the airline's most valuable assets. At the company's Charlotte stronghold, US Airways has 577 daily flights -- nearly double what America West has in Phoenix and Las Vegas combined.

The blending of the two fleets will be a positive in the merger. Both companies bring a mix of Boeing and Airbus jets to the deal.

But there could be even more Airbus planes in the airline's future, as the European conglomerate was among the new investors in the company, trading cash for new aircraft orders. The companies agreed that the merged company would be the launch customer for the Airbus A350 jet, with deliveries planned from 2011 to 2013.

Ultimately the merged company plans to make Airbus jets the workhorse of the company's international flying.

Parker said the merger would produce one of the aviation industry's most financially stable players, with more than $10 billion in annual revenue and a balance sheet that includes $2 billion in cash.

The company has $350 million in new equity from four investor groups. Among them: ACE Aviation Holdings Inc., the Canadian holding company for Air Canada, which is contributing $75 million; PAR Investment Partners LP, a Boston investment firm, committing $100 million; Peninsula Investment Partners LP, a Virginia investment house, $50 million; and Eastshore Holdings LLC, owned by Air Wisconsin Airlines Corp., which is contributing $125 million and will provide regional airline services.

"We are exceptionally pleased with the financial support this transaction has received," Parker said in a statement announcing the deal. "We have created a competitive business that is profitable even with oil prices at $50 a barrel, achieved primarily because of the $600 million of annual net operating synergies."

Among the $600 million in synergies are the route restructurings that will save $150 million to $200 million and better matching of aircraft size to consumer demand. The merged airline also plans to incorporate Hawaii service into the network.

Several approvals are needed before the deal can be finalized. The boards of directors of both airlines have approved the deal, but America West shareholders must still approve it.

So must the U.S. Bankruptcy Court in the Eastern District of Virginia, which is hearing US Airways' Chapter 11 case. Federal regulators from the U.S. Justice Department, the U.S. Transportation Department and the Securities and Exchange Commission must also sign off on the deal. Since both companies have loans with a federal guarantee from the Air Transportation Stabilization Board, it has to approve treatment of those loans under the merger.

America West and US Airways currently operate from different gate areas at McCarran International and it hasn't been determined where the merged company's local home would be. America West operates flights from the airport's A and B gates while US Airways uses the airport's D gates.

"That determination can't be made until we know all of the company's flight changes," airport spokeswoman Elaine Sanchez said.

Signage changes for America West won't be as onerous at McCarran as at most airports because of the local airport's common use terminal equipment program, which uses computers to produce sign displays. With a few mouse clicks, a gate can be transformed from one airline to another.