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Study slaps USAir deal
December 20, 2000: 3:30 p.m. ET

GAO says merger would hurt competition more than help it
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NEW YORK (CNNfn) - A report issued by the General Accounting Office Wednesday said the proposed takeover of US Airways Group Inc. by United Airlines parent UAL Corp. would hurt competition in more than four times as many markets as it would help, affecting more than five times as many passengers.

The GAO, investigating for the Committee on Transportation and Infrastructure, concluded the merger would cut competition in 290 markets that saw 16 million passengers in 1999, and increase competition in 65 markets where 2.9 million people flew.

Shares of US Airways plunged $8.56, about 18 percent, to $39.12 in afternoon trading, while UAL dropped 94 cents to $34.44.

graphicThe Justice Department is currently reviewing the $4.3 billion deal, worth $60 a share in cash to US Airways shareholders.

The report said the merger between the world's largest carrier, United, and US Airways, the No. 6 U.S. airline, "even with the divestiture of selected assets to the new DC Air, would create an airline so large and with dominance in so many markets that, according to airline officials and other industry observers, it would spur further industry consolidation."

The report said the deal would affect five times as many markets and nearly three times as many passengers as the proposed purchase of a majority stake in Continental Airlines by Northwest Airlines, to which the Justice Department objected.

According to the GAO, the combined company could achieve a 90 percent market share between Boston and the Washington, D.C., area and between Tampa and Washington. It could also gain more than a 75 percent market share between Chicago and Washington.

The report bolsters the political case against the merger, said Michael Boyd, an aviation consultant in Evergreen, Colo.

"The politicians see which way the wind is blowing," Boyd said. "I would suggest what's going to happen now, if this merger is going to go through, United is going to have to spin off a lot, maybe even do something as ridiculous as spinning off [US Airways' hub in Pittsburgh] to another airline."

"Justice doesn't want this deal to happen, but they also don't want to say categorically 'no,'" said Credit Suisse First Boston analyst James Higgins. "They're going to offer what they think is a reasonable but high hurdle for allowing this deal to go through."

Higgins added, "The more the conditions, the less chance that United ends up paying $60 [per share] in value to US Airways shareholders."

-- from staff and wire reports graphic