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United, US Airways Deal Gathers Steam

Stocks in this article: UAUA LCC

CHARLOTTE, N.C. ( TheStreet) -- A merger deal between United (UAUA) and US Airways (LCC) gathered steam Thursday, as US Airways pilots asked for an emergency stay in a seniority battle viewed as an impediment to a deal.

US Airways pilots believe a deal is far enough along that on Thursday they filed a request for a stay in U.S. Appeals Court in San Francisco, in a case focused on the seniority dispute that separates the pilot groups at US Airways and America West, which merged in 2005 but still work under separate contracts.

Were United and US Airways to merge, three groups of pilots would have to reach a deal, a difficult task made even more difficult because the relative status of two of the groups is unclear without the court's decision. Moreover, the pending case hinders US Airways' ability to negotiate contract issues with its pilots.

According to the filing, "(an) emergency results from the fact that the pending injunction will prevent a corporate merger that would create an airline capable of competing with the recent Delta/Northwest combination." The lack of resolution could "thwart economic benefits and preservation of jobs that might accrue to the corporations and employees," the filing said.

The request was filed three days after leaders of the U.S. Airline Pilots Association met with US Airways CEO Doug Parker in Phoenix on Monday. The meeting was intended to "underscore USAPA's willingness to work cooperatively with our company's management to facilitate any transaction that brings true value to all the potential stakeholders, including our pilots," the union said.

For decades, US Airways executives have felt that a merger is necessary for the airline's longterm survival. US Airways does not have a hub big enough to enable it to compete successfully with major global airlines and it does not have costs low enough to compete indefinitely with low-cost carriers. During the past week, US Airways pilots have lent at least preliminary support to management pursuit of a merger with United.

Even as the pilots request was being filed on Thursday, however, The New York Times reported that United is also talking with Continental (CAL) about a merger. Many analysts say that United is more eager, and more likely , to merge with Continental than with US Airways.

Late Thursday, Wendy Morse, chairman of the United chapter of the Air Line Pilots Association, reiterated United pilots' support for a merger with Continental. "A merger between United and Continental would contain less route overlap and greater attainable synergies," she said, in a prepared statement. "We have a long-standing working relationship with the pilots of Continental (and) we would parlay this relationship to help make a merger between United and Continental viable for both pilot groups, as well as toward the success of the combined operations."

For their part, many US Airways pilots believe they could work out a seniority integration deal with United pilots that would benefit both parties. They say United pilots may be unnnecessarily fearful that US Airways pilots would seek to invoke seniority rights to choice international flying.

Meanwhile, veteran airline analyst Bob McAdoo of Avondale Partners said Thursday that for United, "the synergies between a merger with Continental and a merger with US Airways are not meaningfully different."

Synergies from a merger between United and US Airways could involve diminishing capacity at hubs that do the same thing, such as Philadelphia and Washington Dulles or Phoenix and Denver. For instance, McAdoo noted that two thirds of United's passengers at Dulles are connecting. "They could just as easily connect over Philadelphia or Charlotte or Newark," he said. "Not that much of the traffic at Dulles is actually destined for Washington." However, United has built Dulles into a major international hub over the past few years.

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