News > Deals
AMR takes TWA aboard
January 10, 2001: 6:04 p.m. ET
AMR also to acquire $1.5B of US Airways assets, 49 percent stake in DC Air
By Staff Writers Tom Johnson and Kim Khan
NEW YORK (CNNfn) - American Airlines parent AMR Corp. unveiled several widely-expected acquisitions Wednesday, including an agreement to purchase most of the financially troubled Trans World Airlines Inc. assets for about $500 million cash. TWA, one of the oldest carriers in the United States, filed for bankruptcy as part of the arrangement.
In separate arrangements, AMR (AMR: Research, Estimates) also agreed to acquire certain assets from US Airways for approximately $1.2 billion, and to purchase a 49 percent stake in the start-up DC Air for approximately $82 million.
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Those deals, if approved, are designed to ease regulatory concerns that have thus far stalled UAL Corp.'s $4.3 billion planned purchase of US Airways (U: Research, Estimates), and will effectively create two dominant airlines in the U.S. air travel industry in UAL (UAL: Research, Estimates), the parent company of United Airlines, and American, currently the No. 2 U.S. carrier.
But the transactions have already sparked strong opposition from some regulators and consumer groups concerned about rapid industry consolidation and the possibility of higher air fares for consumers -- setting the stage for a vigorous regulatory review on Capitol Hill.
"Losing competitors in this highly-concentrated industry is disastrous," said Mark Cooper, research director for the Consumer Federation of America, one of several consumer groups already on record opposing the transactions.
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"We've gotten to the point where the number of national carriers is so small, it's impossible to have competition," he said.
The expected opposition to the agreements announced Wednesday helped push shares of AMR down for the third consecutive day.
AMR shares closed down 25 cents to $38.69, although that was well above the stock's lows of the day.
Some analysts, however, expressed optimism that the transactions would be approved.
"The original US Airways/United proposal was almost dead on arrival," said Ray Neidl, an airline analyst with ING Barings. "I don't think regulators would have ever approved that. But by allowing a powerful company like American to come into many Eastern markets ... I think that will make regulators feel a little better."
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Renewed optimism about the United/US Airways union helped push US Airways up $1.69 to $44.38 in mid-afternoon trading, while UAL shares shed 13 cents to $41.88.
AMR Chairman and CEO Donald Carty Wednesday expressed few concerns about the expected opposition to the deals, stressing that he believes competition in the airline industry will remain vigorous even after the transactions are completed. He said if the review and bankruptcy approval processes run smoothly, the transactions could be completed by late April.
"This is an enormously competitive business, including intense competition between American and United," Carty told CNNfn. "What these deals this week represent, however, is an attempt to deal with that issue. By United divesting themselves of some of the assets that are of concern to the Justice Department and other regulators, I think they've gone a long way to curing the kinds of concerns that [have been] raised.
"The TWA transaction is quite different. TWA is one way or another going to disappear as a corporate entity.
So what we're doing by acquiring TWA is simply preserving 21,000 jobs and a very important and vital hub operation in St. Louis," Carty said.
