US Airways, America West Merger Affects Monterey Peninsula Airport

A merger of US Airways Group Inc. and America West Holdings Corp. shouldn't reduce flights at Monterey Peninsula Airport, but it may open more flight connections to the East Coast, a Monterey airport official said Thursday.

A merger of US Airways and America West -- the nation's seventh- and eighth-largest carriers, respectively -- announced Thursday could generate an estimated $10 billion in annual revenue, executives said.

The companies, which reportedly have been in talks for several months, said they will operate under the US Airways name and be funded by $1.5 billion in new capital from a variety of investors, including aircraft maker Airbus. The new company will be led by Doug Parker, chief executive and president of America West Holdings, and a 13-member board that will include six members from America West and four from US Airways.

Monterey Peninsula Airport has two daily nonstop America West flights to Phoenix and is expecting a third to Las Vegas next month. Those flights are not expected to change or go away, said Tom Greer, the airport's general manager.

"From out standpoint, I think it's going to be transparent," Greer said. "It doesn't make me nervous. The industry has survived mergers before."

However, that's a decision for the carriers, not the airport. And in a letter to Greer on Thursday, airline executives said the merger "will require some changes to our current airport operations and facilities."

In the letter -- signed by Helen Tremont and Paul Lambert, vice presidents of corporate real estate for US Airways and America West, respectively -- the companies said the merger "presents exciting possibilities for our customers, employees and aviation partners," including low fares and flights to more than 200 cities across the United States, Canada, Mexico, the Caribbean and Europe.

The companies plan to build a low-cost airline business model to compete with rival Southwest Airlines Inc. and JetBlue Airways Corp. It also plans to maintain frequent flyer programs, airport clubs and assigned seating, according to the letter to Greer.

Greer said that "if there's a chance that this (merger) could work, it could open up eastern seaboard states for us."

If it doesn't work, he said, "somebody else will pick it (the flight services) up. People are always going to need to fly."

The merger is designed to provide the final investment necessary to allow US Airways to emerge from bankruptcy. The deal must be approved by the U.S. Bankruptcy Court in Alexandria, Va., where the merger proposal will be subject to competing bids.

In a conference call with reporters, Parker said the merger "creates the first nationwide full service low-cost airline."

"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, which last year made its second trip into bankruptcy in two years, slashed worker pay by $1 billion a year and shed $3 billion in pension obligations.

The company has struggled since before the Sept. 11 terrorist attacks, which only sent its figures -- and that of the airline industry -- further downward.

Greer said the merger could help US Airways, which he said "has been on life support for way too long." He said the company has an unsteady reputation, at least in California, mainly because of its 1988 acquisition of California-based Pacific Southwest Airlines, or PSA.

Recognized by its signature smile painted on its airplanes, 40-year-old PSA had a solid reputation at the time it was acquired by US Airways. But the company has since become a relatively unknown regional carrier, Greer said.

"America West has had its share of troubles, (but) US Airways is not very respected in the West," he said.

Tempe, Ariz.,-based America West was founded in 1983 and operates flights across the country through its hubs in Phoenix and Las Vegas. When Parker took over as chief executive in 2001, the company had a reputation for delaying flights and losing luggage. It narrowly avoided bankruptcy in 2001 after securing a $429 million loan guarantee from the federal government.

Its service record has since improved, but its earnings have been mixed, mostly because of high fuel costs and cheaper fares by other carriers.

While the entire airline industry has struggled since the Sept. 11 attacks, US Airways' difficulties have been particularly acute. Even before then, federal regulators rejected a proposed takeover by UAL Corp.'s United Airlines that US Airways executives had believed would cure the carrier's woes.

After Sept. 11, US Airways suffered from the prolonged closure of Reagan National Airport across the river from downtown Washington, D.C., where it was the largest carrier. High-fare business travel, which had been one of US Airways' strengths, dried up. Long security lines at airports persuaded many travelers to drive rather than fly on some of the short-haul flights in which US Airways had specialized.

When US Airways first filed for bankruptcy in 2002, it exited after only eight months after winning about $1 billion a year in labor concessions. The airline believed its new cost structure would allow it to compete with the other ''legacy'' carriers it viewed as its competition.

The company's exit from bankruptcy was sped along thanks to a $900 million government loan that was part of a post Sept. 11 bailout of the industry. It was also helped by a $240 million investment from the Retirement Systems of Alabama, a pension fund whose chief executive, David Bronner, had built a reputation as something of a maverick.

But company executives were forced to admit they underestimated the growth of low-fare carriers. US Airways needed to compete not just with legacy carriers like United and AMR Corp.'s American Airlines, but with low-fare airlines like JetBlue and AirTran Holdings Inc.

Bronner, who now serves as US Airways' chairman, has said that one reason a merger between US Airways and America West can work is that US Airways' management team will be happy to step to the sidelines. Lakefield is a longtime associate of Bronner who had no experience in the airline industry before his appointment to the US Airways board of directors in 2003.

As part of an earlier search for capital before its talks with America West heated up, US Airways was able to convince two regional carriers, Air Wisconsin Airlines Corp. and Republic Airways Holdings Inc., to each invest $125 million in US Airways. The investments came with the condition that US Airways agree to use those carriers as part of its US Airways Express regional fleet.

The deal with Wexford Capital, which controls Republic Airways, was also conditioned on US Airways' ability to attract additional financing. It also required US Airways to sell valuable slots at Reagan National Airport and LaGuardia Airport in New York, though US Airways also retained the right to repurchase those slots.

The deals with both Air Wisconsin and Republic gave US Airways the opportunity to walk away if it found a partner willing to invest on more favorable terms.

Because the airline industry was struggling in 2004 and 2005, the airline concluded that the $250 million in investments from the two regional carriers was insufficient to boost the company out of bankruptcy.