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.

But company executives were forced to quickly admit they underestimated the growth of low-fare carriers, and that 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 that 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, but only on 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 and 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 from those deals if it found a partner willing to invest on more favorable terms.

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

Also, low-fare competition in recent years has increased most dramatically on the East Coast, which has been US Airways' strength.

Last year, for instance, Southwest Airlines Inc. began offering flights at US Airways' hub in Philadelphia. This year Southwest is moving in to Pittsburgh, a former hub where US Airways still maintains a strong presence.

Bill McGlashen, president of the 2,650-member America West Association of Flight Attendants, said employees of the Arizona-based airline are concerned about the possibility that their seniority could get watered down when the staffs of both carriers are combined and thus could lead to less flexible schedules for workers.

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