America West Holdings Corp., the Tempe-based parent of America West Airlines, and US Airways Group made it official this afternoon: they will merge to form a low-fare carrier operating under the US Airways name.
The combined carrier, which would have its headquarters in Tempe, would have about $10 billion in annual revenue and would be one of the industry's most financially stable airlines, the two carriers said in a statement.
"Once the anticipated annual cost savings and revenue synergies of over $600 million are implemented, the new airline will be positioned for profitability at oil prices above $50 a barrel," the statement said.
The combined carrier would be the nation's fifth largest, flying to more than 200 cities across the United States, Canada, Mexico, the Caribbean and Europe.
The $1.5 billion deal is being financed by $350 million in new equity and planned rights offerings, more than $675 million from partners and suppliers, $250 million or more from aircraft-related financing and sales and release of $200 million to $300 million in cash reserves, the airlines said.
America West Holdings CEO Doug Parker said the two airlines have complementary networks with similar aircraft fleets and closely aligned labor contracts, which would ease the merger. “Through this combination, we are seizing the opportunity to strengthen our business rather than waiting for the industry environment to improve," he said.
US Airways CEO Bruce Lakefield said the ability of the two carriers to find partners and investors to finance the deal during a time of uncertainty in the airline industry "is a strong indication of the prospects and enthusiasm for this transaction."
The merger is subject to approval by the U.S. Bankruptcy Court overseeing US Airway's Chapter 11 reorganization. Once the transaction closes, which is anticipated this fall, the merged companies will operate under the leadership of Parker, the companies said. The combined airline's headquarters will be consolidated to America West's offices in Tempe.
US Airways current headquarters are in Virginia.
The merged airline's 13-member board of directors will be composed of one member from each of three new equity investment companies, six members from the current America West board, including Parker as chairman, and four members from the current US Airways board, including Lakefield as vice-chairman.
For regulatory purposes, the airlines will operate under separate operating certificates for a transition period of two to three years, keeping flight crew, maintenance and safety procedures for each airline separate. However, the airlines will coordinate schedules, frequent flyer programs and other marketing programs as soon as practical to provide consumer benefits more quickly, the companies said.
The companies said the merger will create a simplified pricing structure across the expanded national network and access to more international destinations. Members of both frequent flyer programs will retain all of their miles and elite status designations. Other customer amenities will include access to airport clubs and assigned seating.
The combined carrier is expected to have $2 billion in cash at the close of the transaction, which the companies said will help the new company weather the current tough industry environment, including high fuel prices.
A total of $350 million in new equity will be provided by four investor groups: ACE Aviation Holdings Inc., the parent company of Air Canada; PAR Investment Partners L.P., a Boston-based investment firm; Peninsula Investment Partners L.P., a Virginia-based investment firm; and Eastshore Holdings LLC, which is owned by Air Wisconsin Airlines Corp. and its shareholders.
About $675 million in additional cash financing will be obtained through a combination of refunding of deposits, debt refinancing and signing bonuses from companies interested in long-term business relationship with the merged airline.
Another $250 million will come from Airbus in the form of a loan, and the merged airline will be a launch customer for the Airbus A350, a new-generation high-efficiency jet being developed by the European aircraft maker for deliveries from 2011 to 2013.
The new airline also will receive more than $300 million in a signing bonus and loan from prospective affinity credit card providers for the merged company. The $600 million in operating synergies and savings are expected to come from reducing the number of aircraft operated by the two companies and eliminating unprofitable routes, the companies said.
The combined airline is expected to operate fleet of 361 mainline aircraft, supported by 239 regional jets and 57 turboprops that will feed into the main route system. That is down from 419 mainline aircraft operated by the two carriers at the beginning of 2005.
Also aircraft size will be better matched to consumer demand on each route, and Hawaii service will be incorporated into the new network. A total of $250 million to $300 million in savings are expected by reducing administrative overhead, consolidating information technology systems and combining facilities.
Also the merged carrier and Air Canada plan to work together on maintenance contracts, airport handling agreements and eventual expansion of the Star Alliance agreement, allowing code sharing flights between the two carriers. Once fully integrated, the airline will operate primary hubs in Phoenix, Charlotte and Philadelphia with secondary hubs in Las Vegas and Pittsburgh.
Other cities expected to have substantial service will be Boston, New York/LaGuardia, Washington, D.C. and Ft. Lauderdale, Fla. No employee layoffs are planned, the companies said, and contract integration of unionized employees will take place after integrated seniority lists have been negotiated between each airline's labor groups.
"While seniority integration will be a challenge for us and our employees, we will ensure that those issues are discussed and resolved in a fair and equitable manner," Parker said. The merger has been approved by the directors of both airlines.
Because US Airways is in Chapter 11 proceedings, the deal is subject to a competitive bidding process that will be proposed to the court. It also is subject to approval by America West's shareholders.
Both carriers also hold loans that are guaranteed by the Air Transportation Stabilization Board, a federal group formed after 9/11 to help stabilize financing in the airline industry. The carriers said they are in negotiations with the board on the treatment of those loans under the proposed merger.
- Tribune writer Ed Taylor contributed to this report.