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Atlantic Coast, UAL in deal
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March 2, 2001: 9:51 a.m. ET
Atlantic Coast to acquire US Airways subsidiaries from United for $200M
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NEW YORK (CNNfn) - UAL Corp., which is in the process of acquiring US Airways Group, agreed Friday to sell three subsidiary carriers – Piedmont, Allegheny and PSA – wholly owned by US Airways, to Atlantic Coast Airlines Holdings Inc. for roughly $200 million.
The companies said the purchase price will be paid in the form of a promissory note set at $200 million due in 18 months, but the ultimate price will be negotiated and could vary substantially.
However, the entire deal is subject to regulatory approval of UAL's merger with US Airways.
Should Atlantic fail to acquire at least one of the carriers, Atlantic Coast will receive a fee of up to $10.5 million.
Additionally, the companies agreed there would be no layoffs at any of the three carriers for at least two years after regulatory approval of the UAL/US Airways merger.
Atlantic Coast operates as United Express in the Eastern and Midwestern United States and as Delta Connection in the Eastern U.S. Under the pact, the three regional carriers will operate as United Express.
Until the deal is finalized, the three carriers will operate with their own management structures as separate subsidiaries of Atlantic Coast. Atlantic Coast also said the acquisition would not be reflected in earnings statements until agreement is reached on the final purchase price.
Separately, Atlantic Coast said it is comfortable with analysts' first-quarter earnings estimates of 21 cents a share, and with the company's previous guidance of $1-$1.12 a share for the full year.
Merrill Lynch airline analyst Michael Linenberg said it was hard to form an opinion about the deal since there are still many uncertainties in the airline industry, particularly with regard to highly competitive regional carriers.
"It's tough to call. I can say that in the long term, Atlantic Coast is a very interesting growth story, a lot of potential, but there are a lot of uncertainties since it is a high p/e (price to earnings ratio) stock," Linenberg said.
News of the acquisition comes a day after US Airways, the nation's sixth-largest airline, warned it will post a wider-than-expected loss for the first quarter. The company blamed the slowing economy and declining consumer confidence, which led to a softening in business travel.
Intense competition from low-cost competitors also affected results.
Analysts on average expected US Airways to report a first-quarter loss of $1.12 a share, according to earnings tracker First Call. Analysts since have revised their forecast to a loss of $1.39 a share.
The merger between US Airways and United, a subsidiary of UAL Corp., still awaits federal approval.
US Airways (U: Research, Estimates) stock gained 39 cents to $40.64 in Friday afternoon trading; UAL (UAL: Research, Estimates) stock gained $1.39 cents to $36.40, and Atlantic Coast Airlines (ACAI: Research, Estimates) shares increased 19 cents cents to $18.44.
Airline stocks could hit turbulence
Other airline stocks rebounded Friday as investors went bargain hunting for issues that are off sharply from January levels.
Airline shares are down 18-20 percent since January, victims of a slowing economy and layoffs that have forced businesses to cut back on business travel as they streamline costs, Linenberg said.
A series of industry-wide events are also expected to affect the sector.
Active issues apart from UAL and USAirways could include Trans World Airlines, AMR Corp., parent of American Airlines, and Delta Air Lines.
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A group with ties to TWA's machinists' union could end up bidding against American Airlines to acquire the troubled carrier, according to a published report Friday.
The group, with potential backing from Triarc Cos. and financier Carl Icahn, plans to compete for TWA against American and Jet Acquisitions Group Inc., the Wall Street Journal reported.
The TWA Acquisition Group is skipping the bidding process and plans to offer its own reorganization plan at a final hearing in Wilmington, Del., on March 9. One of the group's officers is Brian Freeman, an investment banker who previously advised TWA's machinists union.
In addition, New York holding company Global Airlines Corp. has entered the fray, bidding $450 million for nearly all of TWA's assets except its St. Louis hub.
TWA filed for Chapter 11 bankruptcy protection in Delaware last month as part of an agreement with American Airlines.
And facing no imminent breakthrough, Delta Air Lines and its pilots Thursday asked federal mediators to release them from contract negotiations and offer binding arbitration, a step that could push the nation's third-biggest carrier closer to a strike.
If the National Mediation Board offers arbitration, Delta or the union is expected to reject it, leading to a 30-day "cooling off" period. A strike then could begin April 1, although the mediation board could order further negotiations throughout March.
In addition, a federal judge issued a temporary restraining order Thursday against American Airlines' mechanics union requiring its Local 562 to stop job actions that disrupted flight schedules at New York's JFK International Airport Wednesday and Thursday.
The world's No. 2 airline struggled with a slowdown that tangled flights in and out of Kennedy, and canceled more than 100 flights as a result.
The airline and the union have been in contract talks since October. The contract came up for replacement Thursday, and American recently made an initial comprehensive contract offer.
In other developments Thursday, Northwest Airlines and alliance partner KLM Royal Dutch Airlines eliminated commissions on tickets sold in the United States and Canada through Internet travel sites such as Travelocity, Expedia, OneTravel and Hotwire.
The move comes as carriers try to wrest control of the online travel business from such companies.
Expedia (EXPE: Research, Estimates) shares fell 81 cents, to $12.13 Friday. Travelocity (TVLY: Research, Estimates) shares slipped 31 cents to $14.69.
The airlines had been paying these companies a 5 percent commission up to a maximum of $10 per ticket.
Travelocity in turn said it would charge a $10 service fee on all Northwest and KLM tickets.
Northwest Airlines (NWAC: Research, Estimates) stock fell 13 cents to $21.19. Expedia (EXPE: Research, Estimates) shares slipped 81 cents to $12.13, and Travelocity (TVLY: Research, Estimates) shares shed 53 cents to $14.47.
American Airlines (AMR: Research, Estimates) shares jumped $2.10 to $33.42 in Friday afternoon trading. Delta (DAL: Research, Estimates) shares were up 83 cents to $43.18.
-- from staff and wire reports 
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