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Arlington-based
US Airways has been out of bankruptcy for less
than 18 months of the last 50 since 2001, so it is
fair to wonder exactly how attractive the airline
would be to any investor, particularly in a year
when rising fuel costs and cheap seats will drive
American carriers to lose about $5 billion
dollars. Now the airline built over the last 25
years on Alleghany, Piedmont, Colgan Air and
Pacific Southwest is being acquired by
Phoenix-based America West.
The
deal was announced as a merger in huge headlines
in The Arizona Republic newspaper in
Phoenix on May 19th, as in “AmWest, US Airways
unveil merger deal. Nation’s fifth-largest
airline would be headquartered in Tempe.”
Phoenix television stations covered the press
conference announcing the merger live, then found
“man-in-the- street” support for the local
airline making good, keeping the local economy
going, moving new jobs to Phoenix and creating,
through the US Airways route structure in the
eastern United States, Europe and the Caribbean,
great new connections for Arizona business
executives
This
is more an acquisition than a merger. America West
is, in fact, taking over a Virginia airline.
America West is to get six of the 13 board seats
in the combined company. Its new investors are to
get another three. America West shareholders will
own 45 percent of the new airline and its new
investors will own 41 percent. US Airways
interests will emerge from bankruptcy to own 14
percent. About the only thing America West will
give up is its call sign, Cactus, since the
combined entity is to carry the US Airways name
and the much less entertaining call sign, US Air.
In
the months ahead, the deal inevitably will bring
more attention to the exploding Arizona economy. A
Tempe-based US Airways will join Avnet Inc.,
Phelps Dodge Corp and Allied Waste Industries Inc.
as Arizona companies on the Fortune 500 list. Up
to 25,000 people a month are moving into the
Greater Phoenix area. Yet, housing, office rents,
wages and salaries and other expenses remain lower
than expenses in Northern Virginia.
And
then there are the sunshine and at NBA playoff
time, the Suns. One exclamation point on the
future just added by Arizona’s state legislature
is a new 30 percent angel investor tax credit for
investments ranging from $25,000 to $250,000 in
new technology companies. The credit goes to 35
percent for angel investments in biotechnology or
for technology ventures located in rural Arizona.
It’s another signal for a state that is becoming
increasing competitive for the nation’s best
jobs and most innovative ideas as it transforms
its economy.
Take
as example what the acquisition and move to
Phoenix means for the US Airways economic presence
in Northern Virginia. Though over 1,000 US Airways
workers are likely to remain at the three major
airports -- Dulles International, Reagan National
and BWI -- around Greater Washington, the 600 top
executives and managers in the Virginia
headquarters are likely to be gone by fall when
the deal is done, either transferred to Phoenix or
turned loose.
Those
600 now could be earning from $90 million to $100
million in salaries a year, which tosses off $8
million to $9 million a year in state and local
taxes and millions more in charitable and
community contributions. That’s why economic
development professionals bend over backwards to
recruit corporate headquarters of any kind. And it
is why it remains puzzling that there has been
little, if any community identification or support
for US Airways as a local treasure worth keeping
in Northern Virginia. The 2004 session of the
General Assembly, to the contrary, spent a lot of
time trying to balance its budget by withdrawing
the modest exemption from sales taxes that US
Airways (and other corporate entities) enjoyed for
certain essential equipment. Where is the love?
There
have been other airline startups in Virginia, of
course, most recently low-cost carrier
Independence Air. Colgan Air is back, and Greater
Washington and other parts of the Commonwealth
enjoy some services from industry profit leaders
Southwest Airlines, Air Tran and Jet Blue.
Skeptics of the America West takeover of US
Airways already have offered up the argument that
the combination of one company in bankruptcy with
another that enjoys only a mixed earnings record
in recent years is no sure thing.
But
new investors, including Virginia-based Peninsula
Investment Partners and Air Canada parent ACE
Aviation Holdings, are putting in $1.5 billion.
Investors include jet engine manufacturer General
Electric and European plane manufacturer Airbus,
both of whom have a stake in keeping a carrier
with over 400 planes flying. And travelers have an
interest in a newly-integrated route structure
that connects America West’s western hub in
Phoenix with US Airways eastern hubs in
Philadelphia and Charlotte, and secondary hubs in
Las Vegas and Pittsburgh.
It
is the 14,000 America West employees and 23,000 US
Airways employees, however, who have more than a
little interest in keeping their jobs. So, the
most interesting thing in the months ahead may be
how the new, open management style of America
West’s Doug Parker, who is to be the new CEO of
the combined airline, will accommodate the
traditional eastern union mindset of the US
Airways workforce.
The
willingness of pilots, flight attendants,
mechanics, reservation agents, dispatchers and
others to accept lower pay and loss of benefits
have been in a key ingredient in the ability of US
Airways to survive in recent years. Announced
plans to reduce the combined fleet by 59 airplanes
and the number of flights by 12 percent to 13
percent suggest that attrition alone is unlikely
to produce enough reductions in force for the
combined airline to achieve significant cost
savings. Offsetting all the seniority based
arguments US Airways employees can make is the
imperative of the Phoenix-based senior partner to
maintain the Phoenix-based jobs.
Greater
Washington’s Dulles and Reagan National Airports
are to remain “focus cities” for the new US
Airways, along with Boston, New York/LaGuardia and
Fort Lauderdale. But being a focal point isn’t
the same as being a headquarters. Focal points
don’t bring the investments and leadership that
world-class communities need to thrive.
--
May 23, 2005
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