The Brancatelli File
THE END OF THE BEGINNING
OF THE HATED MERGER
BY JOE BRANCATELLI
July 5, 2001 -- Let me brush up your Churchill as I beg you to curb your enthusiasm concerning the reported death of the hated United-US Airways merger. As the great man warned after an Allied victory in the early days of World War Two: This is not the end. This is not even the beginning of the end. But it may be the end of the beginning.
This thing is not over, fellow flyers. Maybe, if we're lucky, we are at the end of the beginning, but I assure you we have not heard the end of this vile merger. I know this in my bones. I know this from experience around the knaves who play at running airlines. I know this because the facts tell me it is not over.
First of all, look at how the two airlines grudgingly confirmed on Monday that they were no longer star-crossed corporate lovers. Despite what you have read and heard, neither United nor US Airways said they were abandoning the merger. They said only that they were "in discussions regarding the possibility of terminating … prior to the August 1 termination date." Even when you strip away the corporate blather and legal window dressing, you can't help but see the beginnings of an endgame.
As recently as three weeks ago, United chief executive Jim Goodwin was publicly promising that he was going to make this merger happen. But let's say Goodwin woke up last week, had an epiphany and realized United couldn't pull it off. Under the terms of the May, 2000, merger agreement, United can unilaterally kill the deal on August 1 by paying US Airways $50 million. That's all Goodwin has to do. Cut a check on August 1 and walk away. What possible benefits could walking away a few weeks early offer? There is, in fact, no reasonable or unreasonable scenario for United walking away before August 1. The question is: What are United and US Airways really discussing?
Moreover, neither United nor US Airways has informed the Transportation or the Justice Department that the merger is off. United is telling everyone who'll listen that they have now concluded that the regulators would never approve the merger. That may be true--we live in hope!--but you have to wonder how United came to that conclusion. Several key Justice Department officials who have input on the decision let it be known this week that United never even contacted them.
We also know that the pack atop US Airways are desperate for this deal. Chairman Steve Wolf and other top executives of US Airways would cash in to the tune of $140 million if they can sell the airline. And that payout is contingent on selling the airline. Most of their contracts call for max money only if they negotiate a sale of US Airways, not if they turn it into a passenger-pleasing, profit-producing powerhouse.
Goodwin and his major domo, president Rono Dutta, don't want to lose the merger, either. Giving up not only means they have to admit their hubris, it also means people--maybe even United's dysfunctional board of directors--will start demanding answers. About why the only winner in the abandoned $4 billion merger would be American Airlines, which used the cover of the United-US Airways flap to pick up TWA for the equivalent of pocket change. About why United is hemorrhaging cash and customers. About why the United Shuttle is an operational travesty. About why the whole airline is a steaming pile of trash that now needs years of retooling.
No, fellow flyers, United's bosses are too stupid and too frightened to just pick up and walk away now. The US Airways Wolfpack is too greedy. And neither group is interested in or capable of reviving their carriers on their own. Hell, Wolf and US Airways chief executive Rakesh Gangwal are so bloody lazy and so insufferably arrogant that they've admitted they never even bothered to prepare a "Plan B" for US Airways in case the merger tanks.
No, fellow travelers, my guess is that they are going to try again. Some way, in some form, they are gonna try again.
Maybe, on August 1, United pays US Airways its $50 million walk fee and then, shortly after, they come to some new agreement. The price will certainly be substantially lower than the absurd $60 a share United agreed to pay 14 months ago. There will surely be a slicker attempt to package a divestiture of the US Airways Shuttle and US Air's Washington/National hub. You'll certainly be subjected to a few more months of the Wolfpack wailing that US Airways is a failing carrier deserving of extraordinary concessions from the regulators.
Or maybe US Airways just sells a hub or two to United in the next few months. That would leave Wolf and Gangwal free to sell off a shriveled carrier called US Airways to a third party. And that would ensure max payout for them, since they get the really big bucks only if some entity called US Airways is sold.
Of course, there is always the chance we can end this now. Today or tomorrow or next week. All that needs to happen is for the United and US Airways boards to fire their respective top executives for their fiduciary and managerial crimes. But that's probably asking too much of two boards that have been mutely complicit in those crimes.
Take it from me, fellow flyers. We're not at the end of the United-US Airways saga. We're not even at the beginning of the end. This is just the end of the beginning.
This column originally appeared at biztravel.com.
Copyright © 1993-2004 by Joe Brancatelli. All rights reserved.