US Airways and America West Talk Merger

Merger talks between US Airways (search) and America West (search) could herald the start of consolidation for U.S. airlines, although US Airways' chairman is quick to concede that such a combination faces numerous hurdles.

"A lot of things will happen in the U.S. airline industry in the next 12 to 18 months," Chairman David G. Bronner (search) said in an interview Tuesday night. "We'll do whatever is necessary to survive; we'll examine a number of different alternatives."

A combined US Airways-America West would be better able to compete with discount rivals and complement each other geographically, US Airways' chairman said Tuesday night.

Bankrupt US Airways Group Inc. is planning to emerge from court protection later this year, but its reorganization has been complicated by high fuel prices that have decimated the industry's already-battered finances. As a result, US Airways has approached several rivals about a combination, but the discussions with America West have moved along the most, Bronner said.

A spokesman for America West Holdings Corp., America West's parent, declined to discuss what he called a "market rumor."

Talks "probably started in earnest a few months ago," but no deal is imminent, said Bronner, who also serves as CEO of the Retirement Systems of Alabama, which invested $240 million in the company for a controlling stake.

"You take all of these different people with different objectives and see if you can put them into a position where they feel that they're getting out of the equation what they want and still be part of the equation," he said.

US Airways, based in Arlington, Va., has been in Chapter 11 bankruptcy protection since September 2004. It was the second such filing in two years for the nation's seventh-largest carrier.

America West was a good potential merger partner because of its West Coast focus and low-cost carrier status — factors Bronner noted also could give any merger proposal a better chance of navigating federal antitrust review.

"If we picked a different airline that we compete with on a daily basis ... that would be a much harder sell" (to regulators), Bronner said.

Any merger would be subject to the approval not only of the companies' boards, but also US Airways creditors, regulators, and the U.S. Bankruptcy Court, which also would review any other proposals "that happen to show up," Bronner said.

The Wall Street Journal reported that the US Airways-America West talks are dubbed "Project Barbell" in reference to the fact that US Airways' routes are concentrated on the East Coast and America West serves mostly the West. Each offers transcontinental flights, but not many compared to their larger competitors.

Bronner said the leadership at America West was another important factor propelling negotiations.

US Airways executives "are more than happy to go back to playing golf as opposed to running an airline that is extremely difficult," Bronner said, calling America West managers "extremely capable people ... that are well-respected in the industry."

America West, based in Tempe, Ariz., got more than $400 million in commercial loans backed by $380 million in federal guarantees shortly after the 2001 terror attacks. The airline also received concessions from employees, but has found it difficult to return to profitability, because of high jet fuel costs.

Bronner said the carriers would continue discussions in coming weeks to determine the best deal for both companies and employees.

"It will continue on as a process," Bronner said. "There's a lot of things to be hammered out, a lot of meetings to be had, a lot of things that need to be improved ... then it will go to both boards and they'll see if they really want to do it or not."