US Airways, America West Agree to Merge

The combined company, which will operate under the name US Airways, will be funded by $1.5 billion in new capital from a variety of investors.

PHOENIX (AP) -- US Airways Group Inc. and America West Holdings Corp., the nation's seventh and eighth largest carriers, said Thursday that they are merging.

The combined company, which will operate under the name US Airways, will be funded by $1.5 billion in new capital from a variety of investors, including aircraft maker Airbus.

The goal of the merger is to stitch together two geographically distinct carriers with a history of financial struggles into a stronger airline that would compete better with lower-cost rivals such as Southwest Airlines Inc. and JetBlue Airways Corp.

''Building upon two complementary networks with similar fleets, closely aligned labor contracts and two outstanding teams of people, this merger creates the first nationwide full service low-cost airline,'' said Doug Parker, chief executive and president of America West Holdings. ''Through this combination, we are seizing the opportunity to strengthen our business rather than waiting for the industry environment to improve.''

US Airways President and CEO Bruce Lakefield said the merger will ensure US Airways' long-term viability and the security of its employees.

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 Arlington, Va.-based carrier said its goal was to reinvent itself as a low-cost carrier like Jet Blue or America West. But even after the cost reductions, the airline struggled as fuel costs soared and low-fare competitors drove ticket prices down.

America West, which was founded in 1983 and is based in Tempe, Ariz., operates flights across the country through its hubs in Phoenix and Las Vegas.

When Parker took over as chief executive in 2001, America West was dogged by a reputation as a carrier that delayed flights, lost luggage and left customers waiting.

The company was pushed to the brink of bankruptcy shortly after the Sept. 11, 2001 terrorist attacks and secured a $429 million loan guarantee from the federal government. Parker has said the guarantee allowed America West to avoid Chapter 11 bankruptcy, a move the airline might not have survived.

Its service record has since improved. In July 2003, the company reported its first of several quarters of profits after more than two years of losses. Its earnings have since have been mixed, due largely to high fuel costs and too many cheap fares in the market.

The merged airlines will be led by Parker and headquartered in Arizona. The airline's 13-member board will include six members from the current America West board and four members from the current US Airways board.

The merger with America West is designed to provide the final investment necessary to allow US Airways to emerge from bankruptcy.

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 a strength of US Airways, dried up, and long security lines at airports convinced 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, and 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.

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