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US Airways, United seek to halt merger

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CHICAGO — United Airlines and US Airways said Monday that they are in discussions to abandon their planned $4.3 billion merger.

The announcement came after a person familiar with the approval said United is dropping the acquisition because the carrier is convinced the merger won't win regulatory approval.

"UAL Corporation and US Airways Group Inc. have confirmed that they are in discussions regarding the possibility of terminating the proposed merger between the two companies prior to the Aug. 1 termination date," the airlines said.

The carriers said they would make no further comment for the time being.

The source, speaking on condition of anonymity, said the UAL-owned United informed US Airways Friday it wanted to discuss terminating the 13-month-old agreement. The person confirmed reports in several Monday papers, including the Chicago Tribune, New York Times and USA Today.

United, the nation's second-largest airline, will have to pay US Airways a $50 million breakup fee if it ends the agreement after Aug. 1. Before that date, the breakup fee is substantially higher, but United is asking to pay only $50 million. Experts had been expecting the deal to fall through because of antitrust concerns, said Ray Neidl, an analyst with ABN Amro Inc.

Other major airlines probably won't be interested in trying to buy US Airways because they would face the same regulatory scrutiny with little chance of overcoming it, he said.

Helane Becker, an airlines analyst with Buckingham Research Group, added there clearly was "no way" the deal was going through.

"It was taking too long and there was no way the Justice Department would approve it," she said.

In an effort to ease anticompetitive concerns and ensure government approval, United agreed in January to sell some US Airways assets to AMR Corp.'s American Airlines, including half of US Airways' Washington-New York-Boston shuttle.

But Justice Department lawyers appeared to remain concerned about the concentration of market power in Washington and other markets, prompting Transportation Secretary Norman Y. Mineta last month to say he expected the government to reject the proposed merger.

A weakening economy is also hurting UAL, and the airline has become reluctant to engage in a costly, complicated merger. United signed a contract with its pilots last year on the assumption the merger would be approved. The pact gave pilots 45 percent raises over four years.

United reported a worse-than-expected first quarter loss of $313 million on revenues of $4.42 billion and has already said it expects a double-digit decline in revenue for the second quarter.

United would have paid $4.3 billion in cash for US Airways shares, or about $60 a share, nearly triple of US Airways' current stock price.

Shares of US Airways were down $3.67, or 15 percent, to $20.63 in late morning trading Monday on the New York Stock Exchange, while shares of UAL were up 47 cents to $35.62, well off their 52-week high of $61.62.

Neidl said the wide spread between the US Airways' share price and what United was going to pay was a clear sign that the deal was in danger.

"The market was pretty much discounting any takeover," he said.