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US airlines in merger frenzy
The merger business has whipped into a frenzy of activity among US airlines.
- AirTran has made a bid for Midwest.
- There’s a potential United-Continental tie-up.
- US Airways continues to pursue a hostile takeover of Delta.
Continental executives in the past have said they did not want a merger.
The Wall Street Journal says that “people familiar with the airline’s strategy said Continental favours the status quo because it believes it’s better-positioned than its peers in terms of its popularity with business travellers, ability to command higher fares, strong hubs in Houston and Newark and extensive routes to Europe and Latin America.”
Some news reports said a United-Continental merger would have serious obstacles because Northwest Airlines may be able to stop it under a prior agreement with Continental.
The AirTran proposal comes in the wake of a failed merger bid made for Midwest last October.
AirTran said the combination would create a low-cost airline that would generate more than $60 million in estimated cost savings.
AirTran said it had offered to buy rival Midwest for a total equity value of about $290 million.
The buyout would create “a national low-cost carrier with a broad network, strong fleet commonality and shared corporate culture,” according to AirTran.
AirTran, a discount full-service carrier operating mainly from Orlando and Atlanta hubs, said its chief executive Joe Leonard had originally outlined the merger proposal to Midwest on October 20. Midwest rebuffed that proposal, AirTran said.
Leonard had sent another letter to the Midwest board this week, but the $290 million offer was rejected. Talks are ongoing, however.
The merger would create a national low-cost carrier with pro forma revenue of about $3 billion in 2007. The merged carrier would have roughly 1,036 daily departures.
All this activity comes after the recent hostile $8.67 billion takeover bid from US Airways for Delta Air Lines. Executives have rebuffed the offer.
The moves are coming because most airlines are trying to streamline and economise, say industry analysts. Seven of the 10 largest US airlines lost money in 2005, according to Standard & Poor’s
Phil Davies
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