Group sees worse problems with a combined company

Less than 24 hours after Continental Airlines’ board decided (on April 27) that it would not pursue a merger with United Airlines, the Associated Press reported that United was in “very advanced” merger talks with US Airways. The wire service said that the two companies were “expected to announce within two weeks that they are combining.” But United’s pilots have come out in vocal opposition to the prospect of a merger with US Airways, saying that such a combination would be “extremely negative from United’s perspective.” Even though United “has its own problems,” the United pilots said, they alleged that US Airways’ problems “run even deeper,” noting that it trails behind other legacy airlines in generating cash flow from operations, and that it ranks “at or near the bottom among legacy carriers” in operational performance and in customer satisfaction surveys. The United pilots also noted that two and a half years after US Airways merged with America West, the pilots from those two former airlines are still bickering about how to integrate their seniority lists – the same divisive issue that almost torpedoed the Delta-Northwest merger. “US Airways’ pilot integration problems have created a toxic stew, as any carrier that seeks to merge with it will quickly discover,” the United pilots said.

After the proposed combination with Continental fell apart, United CEO Glenn Tilton – while not confirming alternate merger talks with US Airways – made it clear that United wants to partner up with someone. “Our strategy is consistent,” Tilton said. “Consolidation is underway – ensuring you have the right partner is everything. We will pursue all options to ensure a strong, sustainable future for our airline.” But United’s pilots also blasted Tilton for his 2007 compensation package worth $10.3 million, revealed at the same time United posted a first quarter 2008 loss of $545 million. The pilots called Tilton’s pay an “in-your-face display of corporate greed.” The pilots said that instead of pursuing a merger at all costs, United’s management should “take a page from Continental and turn its attention inward.” The pilots noted that United “is the only carrier in the industry with no aircraft on order or optioned. That is not a long-term plan for survival,” they said.

The prospect of a United-US Airways merger is also complicated by the fact that the two carriers attempted to merge in 2001 – before US Airways’ merger with America West – but the deal was rejected by federal antitrust regulators. The argument could be made, however, that the government might look more favorably on such a merger today, following a longstanding, unwritten policy known as the “failing carrier doctrine,” which argues that it’s better for a troubled airline to merge than to go out of business.