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Aviation History
1992
1992 - 0020.PDF
NEWS ANALYSIS BARGAIN BASEMENT The collapse of three US airlines in 1991 gave stronger carriers an unprecedented opportunity to expand by acquiring routes and other assets. They were helped, rather than hindered, by recession, which drove prices down as the year progressed. In a year in which US airlines lost, collectively, $1.8 billion, the same airlines spent more than $2 billion buying parts of other US airlines. Prices dropped dramatically, from S445 million for just three transatlantic routes at the start of 1991 to $135 million for an entire Latin-American network at the year's end. If the buying spree continues into 1992 there are some bargains to be had. Inevitably it was the "Big Three" US airlines, American, Delta and United, which did most of the buying in 1991. Equally inevitably, it was the five major US airlines facing bankruptcy that did much of the selling. The bulk of the money raised went to creditors of the three US airlines liquidated in 1991 — Eastern in January, Midway in November and Pan American in December. Few would have predicted at the start of the year that conser vative Delta would emerge as 1991's big spender, with acquisi tions exceeding $650 million, according to Flight Interna tional's calculations. American came in second, exceeding $600 million, which United just failed to reach. All three spent far more than other notable acquir ers — USAir spent less than $150 million, and Northwest well under half that. Delta began the year conven tionally enough by paying $165 million for various Eastern as sets, including gates at the At lanta hub which the carriers shared. The airline's biggest and costliest coup was outbidding American and United for Pan Am's US East Coast shuttle serv ice, transatlantic routes, Frank furt hub and onward rights. The acquisition turned Delta into an international airline overnight, but the jury is still out on how much that transformation cost. The assets cost Delta $416 million. It wrote off another $50 million in the abortive attempt to re-organise what remained of Pan Am into a viable airline. Delta also advanced $115 mil lion to Pan Am to keep it flying and, while its refusal to advance a further $25 million precipi tated Pan Am's collapse, Delta paid that much for a New York- Mexico City route at the liquida tion auction which followed. American could be regarded London routes and San Fran cisco hub. At the December bankruptcy-court auction which followed Pan Am's collapse, United bought the defunct car rier's entire Latin-American net work for $135 million — $100 million less than it had offered only four months earlier. USAir may have emerged from 1991 as the biggest winner of all, •St. KS1M I ,«'i -it*s If the buying spree continues there are bargains to be had." as 1991's biggest loser, having agreed at the end of 1990 to pay TWA $445 million for six Lon don routes, only to have the US Department of Transportation disallow the transfer of three of them. American agreed to pay the full price for only three routes, and added to its 1991 total $140 million for bankrupt Continental's Seattle-Tokyo route and $21 million for failed Midway's New York LaGuardia and Washington National slots. In contrast, United emerged from 1991 a big winner, thanks to Pan Am's eleventh-hour de mise and the recession's effect on route prices. The carrier began the year having agreed to pay $400 million for Pan Am's despite a modest outlay by the standards of the Big Three. The airline's acquisitions approached $150 million and wcr.. aimost all former Eastern assets changing hands for a second time — and at considerably lower prices. Former Eastern assets ac quired by USAir include a Phila delphia hub for $68 million and a LaGuardia terminal and Wash ington National slots for $61 million. Midway paid $100 mil lion for Eastern's Philadelphia hub, and the LaGuardia terminal would certainly have fetched more in 1989 when Trump bought Eastern's New York- Washington-Boston Shuttle for $365 million — USAir has just agreed to pay $16 million for the right to operate the Shuttle for ten years. USAir capped a year of useful acquisitions by paying $50 mil lion for two of the three London routes American was not al lowed to buy from TWA. Based on American's offer of $445 million for six routes, USAir's routes from Baltimore and Phila delphia to London would have cost it almost $150 million at the prices of a year ago. Northwest talked big during 1991, but emerged with little. The debt-laden airline shelved merger talks with Continental, scrapped plans to operate the Trump Shuttle and abandoned an agreed take-over of Midway, precipitating the bankrupt car rier's collapse. Northwest did come to the aid of struggling America West, agreeing to pay S15 million for the airline's Honolulu-Nagoya route and pro viding $20 million in financing to the Chapter 11 carrier. Eastern, Midway and Pan Am were sold finally in 1991, raising almost $1.5 billion for their creditors. TWA survived by sell ing assets exceeding $500 mil lion. Continental raised almost as much, although its sale of Air Micronesia for $290 million needs approval. America West has avoided a major asset sale so far as it, too, seeks a route out of Chapter 11. The selling spree of some airlines looks set to continue into 1992: American is ru moured to be considering buy ing up to 49% of Canadian International, and United has already offered to buy its United Express regional affiliate Air Wisconsin for $72 million. If. however, major parts of TWA, Continental or America West come on to the market, there must be serious doubt, after the events of 1991, whether there will be any US buyers willing to step forward. BY GRAHAM WARWICK a FLIGHT INTERNATIONAL 8 - 14 January, 1992
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