Skip to main content /US
CNN.com /US
CNN TV
EDITIONS


On The Scene

Fred Katayama: United, US Airways merger not taking off

United Airlines' parent company and US Airways Group Inc. said Monday they were discussing ending their $4.3 billion merger, a move that would scuttle what would have been the biggest acquisition in the airline industry. A source familiar with the situation told CNNfn that United's parent, UAL Corp., decided to pull out of the deal because of problems getting it cleared by regulators. CNNfn's Fred Katayama

Q: Why is the Justice Department opposing such a deal?

Katayama: A source familiar with the situation says the Justice Department is objecting to the merger out of antitrust concerns, worried that the two airlines combined would dominate air traffic in Washington, D.C., among other locations. Analysts say a merger between the two would leave the three largest U.S. airlines controlling more than three-quarters of domestic air traffic.

Q: Will the scuttling of purchase threaten similar deals?

Katayama: Wall Street believes the scuttling of the merger will dissuade rivals from merging. UBS Warburg analyst Sam Buttrick says "if the UAL-USAirways can't clear the regulatory hurdle on economic terms, then neither would any combination of a top three carrier with any of the middle three."

Q: How would such a deal hurt consumers?

Katayama: Consumer groups say a merger between US Air and United would hurt consumers by resulting in higher prices.

Q: What's next for the airlines?

Katayama: The two airlines won't comment. But airline analysts believe US Airways has two options: restructure itself or sell off parts of the business. Its stock is down on the news. United's stock is up today. Analysts say the breakup is positive for United in the short term. A merger would have hurt United's earnings in the short term at a time when United is losing money. And Wall Street felt that United's bid was too highly priced. Plus, relieving itself of a merger would allow United to concentrate on fixing its problems, such as customer service, on-time performance, and its relationship with its labor unions, which opposed the deal.







RELATED SITES:
See related sites about US
Note: Pages will open in a new browser window
External sites are not endorsed by CNN Interactive.


 Search   

Back to the top