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US Airways, United Airlines Merger Deal Dead - 2001-07-28

Two U.S.-based airlines have officially called off their plans to merge, after the United States Justice Department said it would go to court to block the deal. The proposed acquisition of U.S. Airways by United Airlines would have created the largest airline in the world.

United Airlines' plan to buy U.S. Airways had been troubled since the proposed $4.3 billion deal was announced last year. The biggest concern expressed by analysts and eventually, the U.S. government, was the merger would reduce competition and drive up fares.

On Friday, the U.S. Justice Department came out against the merger. Attorney General John Ashcroft said if the deal went through, millions of airline passengers would have little choice but to pay higher fares and accept lower-quality service. He said the combined airline would have had a monopoly or near-monopoly over 30 routes in the United States.

United Airlines is the nation's second-largest carrier. U.S. Airways is the country's number six airline. In recent months, United has proposed selling off some U.S. Airways assets along the East Coast to increase competition. Some of those assets would have helped create a new airline, D.C. Air, which was to have been based in Washington.

In July of this year, United Airlines tried to call off its acquisition in the face of financial losses, a worsening U.S. economy and labor troubles at the carrier. It agreed to continue pursuing the merger after U.S. Airways rejected the proposed separation.

U.S. Airways has said merging with United was its best chance to remain profitable in an increasingly competitive industry. The company issued a statement after the government announced its intent to block the merger, saying it is disappointed but respects the Justice Department's decision. Analysts say U.S. Airways will need to keep looking for a new partner.

United will have to pay U.S. Airways $50 million to terminate the merger agreement. Stocks of both airlines fell Friday on the New York Stock Exchange.