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Merger Will Create Eight Largest U.S. Air Carrier

December 9, 1986

WASHINGTON (AP) _ USAir joined the airline merger movement Monday, announcing the purchase of Pacific Southwest Airlines in a deal that will establish the carrier firmly on the West Coast and give it the size to compete in a rapidly consolidating industry.

The merger combines two carriers that have concentrated on developing successful short- and medium-haul markets at opposite ends of the country with a fleet of modern, fuel efficient aircraft.

The combined airline will become the country’s eighth largest once all the currently proposed mergers are completed. USAir now ranks seventh and PSA is 11th largest in terms of revenue passengers miles flown during the first six months of the year.

The boards of directors of both airline companies approved the merger during intensive discussions during the weekend and it was announced at a news conference by USAir Chairman Edwin Colodny early Monday. PSA executives only recently had expressed a desire to keep the West Coast airline independent.

Colodny said USAir Group, the airline’s parent company, would buy PSA for $17 a share with the total transaction costing about $400 million. PSA common stock, which is traded separately from that of the parent company, rose $4.75 a share Monday to close at $16 in national over-the-counter trading. USAir common stock fell $1.87 1/2 to close at $38.50 a share on Monday.

Both of the airlines have been profitable with PSA, headquartered in San Diego, earning $2.1 million during the first nine months of this year. During the same period, USAir, which is headquartered near Washington D.C., earned $59.6 million. The third quarter was PSA’s most successful quarter in its history with earnings of $11.7 million.

The deal still must be approved by the shareholders of PSA as well as the Transportation Department. Colodny said he expects no problems getting government clearance for the merger since the two airlines do not compete directly.

The acquisition is the latest in a string of airline mergers this year that has produced a rapid consolidation of major airline companies. Once the currently proposed mergers are completed the combined USAir and PSA will rank behind Texas Air Corp., United, American, Delta/Western, Northwest/Republic, TWA-Ozark and Pan American World Airways.

Colodny said USAir has had ″a long interest″ in expanding into the West and that the purchase of PSA ″obviously was dictated by their decision to sell.″

Even in recent weeks, Paul C. Barkley, PSA’s chairman and chief operating officer, had indicated that the airline expected to remain independent despite the frenzy of recent mergers in the industry.

But, according to industry analysts and sources within the airline, several recent developments had caused the PSA board to look favorably on finding a larger partner. Among those developments was the recently announced purchase by American Airlines of Air California, the decision by United Airlines to sharply expand its operations at Los Angeles and the merger of Delta Air Lines with Western Airlines.

″As far as the (USAir and PSA route) systems go its a natural. It puts them in a position to really expand their east-west connections,″ said Louis A. Marckesano, an airline industry analysist for Janney Montgomery Scott Inc.

USAir, once known as Allegheny Airlines, has concentrated its routes east of the Mississippi River, funneling flights through its hub at Pittsburgh. While it has a small number of flights to the West Coast, the heart of its system is in the Northeast and south to Florida.

PSA is concentrated along the West Coast with a total of 228 daily flights out of Los Angeles and San Francisco. It has flights as far north as Seattle and Bellingham, Wash., and south to San Diego and Tuscon, Ariz.,

Colodny said that USAir initially would operate PSA as a wholly owned subsidiary, maintaining the West Coast airline’s management group, but that eventually the two airlines would be merged into one carrier. USAir has about 20,000 employees and PSA nearly 5,000.

USAir plans immediately to begin joint marketing programs that link some of USAir’s transcontinental flights to PSA’s flights in the West. USAir also plans to add two flights next year to Seattle and Las Vegas, which PSA also serves.

Colodny said ″one of the beauties of this agreement″ is PSA’s modern fleet of jetliners, which includes 31 McDonnell Douglas MD-80s and 20 British Aerospace BAe-146s. The two airlines together will have 202 aircraft.

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