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Search Terms: United Airlines w/5 US Airways w/10 Merger

Document 123 of 279.

June 30, 2000, Friday

SECTION: BUSINESS, Pg. 1G

LENGTH: 920 words

HEADLINE: CEO HAS BIG PLANS FOR UPSTART DC AIR

BYLINE: Paul Souhrada and LaTonya Taylor, Dispatch Business Reporters

BODY:

Travelers to Washington via DC Air eventually will see better service and lower fares, promised Robert Johnson, chief executive of the upstart airline that would be created if the proposed merger of United Airlines and US Airways goes through.

But first, they'll just have to be satisfied with not losing service between Columbus and the nation's capital.

Passengers on the three daily flights between Port Columbus and Reagan National Airport probably won't notice much difference at first, said Johnson, a self-made millionaire who founded the Black Entertainment Television cable channel and related media ventures.

That's because plans call for DC Air to take over US Airways' direct routes between National and airports in Columbus, Dayton and 41 other cities, operating with planes and employees leased from United. Johnson would pay $ 140 million for the government-controlled landing and takeoff rights at National. "The flight attendants, we'll probably give a button that will say 'DC Air' to wear over their United uniform or their US Airways uniform,'' said Johnson, who was in town this week for a national conference on empowerment zones.

US Airways, with a 15.2 percent share of the air travel market locally, was the second-busiest airline at Port Columbus last year, just ahead of No. 3 America West. Delta Airlines, with 20 percent of the passengers, was No. 1 in Columbus. United and Southwest Airlines had about 10 percent of the market in Columbus last year.

Chicago-based United, the nation's largest airline, in May offered $ 11.3 billion for US Airways, based in Arlington, Va. and No. 6 among the nation's airlines. The deal would give United 27 percent of all domestic passenger traffic and make United 50 percent larger than its nearest competitor. Of concern, from a federal regulator's point of view, is the fact that the new airline would control 39 percent of the passenger traffic at National and 62 percent at Washington Dulles International Airport.

That's where DC Air comes in.

US Airways CEO Stephen Wolf and United CEO James Goodwin, figuring they would have to spin off some of the Washington routes to win regulatory approval of the deal, approached Johnson -- a US Airways board member -- with the idea of creating a third airline.

"If somebody shows you that kind of respect for your ability to do something and you're excited about it and feel confident you can do it, you have to take it on,'' Johnson said. "This is an opportunity to do something no one else has done in terms of an African-American running an airline of this size.''

The arrangement with United calls for DC Air to begin operating the day after the deal closes with US Airways, something Johnson hopes will happen by the end of the year.

The merger must first win the approval of the U.S. Justice Department.

Critics worry not only that a bigger United -- and the loss of competition from US Airways -- will lead to higher air fares, but also that the merger will trigger a wave of combinations throughout the industry.

Sen. Mike DeWine, R-Ohio, raised the issue during a hearing in his Senate antitrust subcommittee meeting this month.

"In these circumstances, the other major airlines will almost be forced to react, and the most logical reaction will be more mergers,'' he said. "If this deal is approved, we are likely to see rapid consolidation within the industry and could easily see the domestic aviation market shrink from six major players to three major players within a very short period of time.''

Johnson said he believes the deal should be considered on its own merit, without trying to predict the reactions of American Airlines and Delta -- the No. 2 and No. 3 airlines.

He predicted consumers would benefit from the merger of United and US Airways, gaining a larger number of flights and more convenient frequent- flyer programs, ticketing and connections.

Costs for US Airways, meanwhile, should come down as the company matures and is able to replace its leased aircraft with company- owned planes, he added.

That lease agreement and other elements of DC Air's future relationship with United has some industry watchers wondering how independent the new airline will be.

"It's hard to justify two companies that are merging and going to dominate a relatively large market area being able to anoint their successor,'' said Edward Faberman, executive director of the Air Carrier Association of America, a trade group representing startup airlines.

Johnson "definitely got a sweetheart deal,'' Faberman said.

Kevin Mitchell, chairman of the Business Travel Coalition, said he thinks the valuable take-off and landing rights at National should be auctioned off.

"The opportunity being missed is to open up slots with aggressive new carriers that will expand competition,'' said Mitchell, whose group represents 21,000 business travelers.

An auction, though, could result in some cities losing service, Johnson said.

"It may mean Columbus may not have the same frequency'' of flights, he warned. "It possibly may have more, but that means somebody else is going to lose flights.

"Somebody may say, 'I can make more money flying to Dallas than flying to Dayton.' ''

Johnson also scoffed at allegations that he is nothing more than a front for United.

"I'm putting up $ 200 million of my own money,'' he said. "I'm not anxious to lose my money just to make Steve Wolf's deal go through so he can retire with a lot of cash.''

GRAPHIC: Phot, Robert Johnso

LOAD-DATE: June 30, 2000

Document 123 of 279.


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