April 22 (Bloomberg) -- US Airways Group Inc., seeking to exit bankruptcy protection, and America West Holdings Corp. are in talks about a possible merger that would link their east and west networks to create a bigger, national competitor.
The companies said in one-paragraph statements today that there is no assurance the discussions will lead to an agreement. The airlines didn't provide details and said they wouldn't comment further until there is an agreement or the talks are terminated.
A merger would connect the East Coast network of US Airways, the 7th-largest U.S. carrier, to the western-focused system of No. 8 America West. U.S. airline mergers in the past, including a United Airlines bid to buy US Airways that fell apart in 2001, have historically run into opposition from the U.S. government and airline unions.
``Airline mergers are sloppy, and it could turn out to be disastrous in this case,'' said Ray Neidl, an analyst with Calyon Securities in New York, who rates shares of America West ``add'' and those of US Airways ``sell.''
America West's shares have declined 11 percent since April 20 newspaper reports that the two airlines were in talks.
Arlington, Virginia-based US Airways sought Chapter 11 bankruptcy in September for the second time in two years under the weight of some of the industry's highest labor costs and rising East Coast pricing competition.
America West cut costs two years ago so it could be more price-competitive against expanding discounters such as Southwest Airlines Co. America West was one of the few U.S. airlines to report a first-quarter profit. The Phoenix-based carrier had an $89 million loss a year earlier.
Bypassing Southwest
A combination of the carriers would create an airline that bypassed Southwest to rank sixth among U.S. carriers, based on 2004 passenger traffic, or miles flown by paying passengers. AMR Corp.'s American Airlines is the biggest airline in the world based on passenger traffic.
America West Chief Executive Doug Parker said yesterday that his airline would have to find ``outside sources of capital'' if it wanted to acquire another company's assets. He declined to comment on a possible merger at that time. The airline had considered purchasing assets of ATA Holdings Corp. late last year.
U.S. carriers are trying to lower labor costs because fuel expense, their second-biggest cost, has risen on higher energy prices and because ticket-pricing competition for U.S. flights has reduced average fares. The airlines have posted $33 billion in losses, collectively, since 2000.
Partnership?
America West said in its statement that the talks were about a ``potential merger.'' US Airways said the discussions were about a ``potential strategic transaction.''
Analyst Neidl said some type of partnership would be more successful than a merger.
``Partnership under the leadership of America West could be workable,'' Neidl said in an interview.
General Electric Co., the biggest creditor in the US Airways bankruptcy, has also refinanced loans for America West, as recently as last September. Both carriers also sought and received U.S. government loan guarantees made available to all U.S. carriers after the Sept. 11 attacks.
