Airline Competition: Issues Raised by Consolidation Proposals Page: 4 of 20
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American's proposed arrangements with TWA, United, US Airways, and DC Air raise a
number of significant questions that cannot be answered now, in part because many of
the details of these arrangements are still unknown. Although TWA has been in poor
financial condition for years, the question remains whether American's purchase of TWA
represents the least anticompetitive means to preserve its assets. Other questions arise
about how the agreements that American has tentatively made with United (regarding the
future of the US Airways Shuttle between Washington, New York, and Boston and the
assets associated with the proposed DC Air) would affect competition.
The consolidation in the industry that might result from both the proposed American and
United transactions raises major public policy issues. These include, but are not limited
to, questions about how a more consolidated industry might further raise barriers to
market entry by new airlines, how the two merged airlines might compete in key markets,
whether the merged carriers would expose the public to greater risks of travel
disruptions, and how service to small communities might be affected.
Background
On May 24, 2000, United and US Airways agreed to merge their operations. Under the terms of
the proposed merger, United would acquire US Airways in a transaction valued at $11.6 billion.
Specifically, United would pay $60 for each share of common US Airways stock for a total of $4.3
billion and would assume $1.5 billion in US Airways net debt and $5.8 billion in aircraft operating
leases. According to information from United, the combined company ("new United") would
have approximately 145,000 employees. It would operate eight hubs in six states and serve a
total of 380 airports throughout the country, reaching communities in every state.
Under the terms of the proposed merger, United plans to divest some of the assets US Airways
possesses at Ronald Reagan Washington National Airport (Reagan National). These assets would
be used to create a new airline known as DC Air. They include 222 departure and arrival slots,5
several gates and related airport facilities, and the operations of an existing commuter airline.
5The Federal Aviation Administration limits the number of operations (takeoffs and landings) that can
occur during certain periods of the day at four congested airports-O'Hare in Chicago; Reagan National in
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United States. General Accounting Office. Airline Competition: Issues Raised by Consolidation Proposals, text, February 1, 2001; Washington D.C.. (https://digital.library.unt.edu/ark:/67531/metadc289705/m1/4/: accessed April 24, 2024), University of North Texas Libraries, UNT Digital Library, https://digital.library.unt.edu; crediting UNT Libraries Government Documents Department.