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Continental wants DC Air
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October 9, 2000: 4:39 p.m. ET
Airline would buy assets UAL-US Airways propose to spin off if their deal is OK'd
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NEW YORK (CNNfn) - Continental Airlines is making a bid for the assets of DC Air, a proposed airline that has yet to make its first flight.
Houston-based Continental is offering $215 million for the airport gates, flight slots and other assets that would be spun off if United Airline's proposed purchase of US Airways Group Inc. is completed.
United's parent UAL Corp. and US Airways announced the proposed $4.3 billion deal in May, and both also unveiled plans for creation of DC Air, which would buy the assets Continental now seeks for $141 million. Under the plans, DC Air would be owned by Robert Johnson, a board member of US Airways and the owner of Black Entertainment Television.
 The offer was made in an Oct. 2 letter to the chief executives of UAL and US Airways, and reiterated in a letter Monday.
"We trust your good intentions in creating the DC Air structure as an attempt to address what would otherwise be an unacceptably high concentration of the Washington market brought about by a United/US Airways merger," said the Oct. 9 letter from Continental Chairman Gordon Bethune. "However, we believe that the structure for DC Air you have developed with Mr. Johnson does not solve this important competitive issue.
"While we have the utmost respect for Mr. Johnson's success in the entertainment business, he has no expertise in the airline business," the letter continues. "DC Air will be totally dependent on United Airlines to operate the business for it, thus bringing no real competition to this crucial market."
Most of the assets are at Reagan National Airport in Washington. The new carrier proposes to serve 43 other cities, mostly with flights to and from Washington.
Spokesmen for US Airways and Johnson did not have an immediate comment on the offer.
UAL released a vague statement reiterating the importance of creating DC Air, but did not address the Continental offer directly.
"United has recognized from the beginning the need to maintain and enhance competition in Washington D.C. by the divestiture of US Airways assets at Washington Reagan National Airport, said Chris Brathwaite, a UAL spokesman, "The creation of DC Air, an new independent airline at Reagan National Airport, is an important benefit provided for by the acquisition of U.S. Airways by United Airlines."
Ray Neidl, airline analyst for ING Barings, said he believes the assets might actually be worth more than Continental's $215 bid if they were put up for general auction. He said Delta Air Lines (DAL: Research, Estimates), the nation's No. 3 carrier, and the operator of shuttle flights at National, would be interested in them.
"I don't think there's been a massive sale of slots," said Neidl. "By having a massive amount of slots sold, it'd be a lot more valuable for a carrier like Continental."
Neidl said he still puts the odds of approval of the UAL-US Airways deal at one in four, although he said an offer like this may increase the likelihood of the deal winning approval.
"More and more people are coming around to thinking it could happened with a restructuring of the deal, perhaps along these lines," he said. "I think they (regulators) would look at it more favorably if this happened. Certainly it would be a more viable competitor than DC Air."
Continental spokesman Ned Walker said the airline believes UAL and US Airways' board would look favorably on the offer, even though it would help a competitor.
"We're offering more than 50 percent premium to their shareholders," he said. "What we're also bringing is true competition. As deal is currently structured, competition is sorely lacking."
Most major airline stocks were down Monday. Shares of UAL (UAL: Research, Estimates) lost $1.19 to $41.19, while Continental (CAL: Research, Estimates) shares fell $1.88 to $46.13 and US Airways (U: Research, Estimates) shares finished unchanged at $31.44. 
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