Department of Justice Grounds DC Air

United Airlines-US Airways merger called off

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Robert L. Johnson had his opportunity to launch the largest minority-owned airline grounded as the Department of Justice quashed the proposed merger of United Airlines and US Airways.

A spin-off of the proposed merger, DC Air would have been the country’s largest minority-owned airline. U.S. Department of Justice antitrust officials gave the thumbs-down to the United-US Airways $12.3 billion merger in July (United was to pay $4.3 in cash to acquire US Airways and assume $8 billion of its debt). “DC Air was a once-in-a-lifetime opportunity the way it was presented to me, and it will probably never come again,” says Johnson, founder of the BET network and also a member of the board of directors of US Airways. “I have no interest in owning an airline outside of this opportunity.”

DC Air was launched in May 2000 to help win DOJ approval of the controversial merger between the two larger carriers. The spin-off, DC Air, would be made from a divestiture of US Airways’ East Coast routes and be based at Ronald Reagan National Airport in Washington, D.C. (see “Will DC Air Fly?” Newspoints, August 2000). During months of turmoil, politicians, consumer groups, and rival airlines warned that the impending consolidation would give birth to the world’s largest airline and that competition would be jeopardized despite DC Air. In midsummer the suspense ended. The DOJ said no.

“If this acquisition were allowed to proceed, millions of consumers–business, government, and families–would have little choice but to pay higher fares and accept lower-quality air service,” stated Attorney General John Ashcroft.

Attorneys general in 12 states intended to join the DOJ in filing a merger-blocking lawsuit, but a few hours after the DOJ announcement, United and US Airways pronounced their deal dead.

Analysts believe the DOJ’s stance puts an end to an intense season of airline mergers.

Johnson had invested $3 million in DC Air. The way the deal was structured, all of Johnson’s expenses associated with trying to start the airline are to be reimbursed by US Airways. “I had no financial loss whatsoever,” disclosed Johnson. “I’m disappointed, because DC Air would have been a different airline operation. It would have been a very profitable airline system, and it would have been an exciting adventure to operate the airline,” says Johnson.

Like Southwest Airlines’ CEO Herb Kelleher, Johnson may have been an innovator. “He does ventures where nobody else has done them before, and that’s the type of person I think the industry is crying out for at this time,” says Darryl Jenkins, director of George Washington University’s Aviation Institute in Ashburn, Virginia.

Air travel’s loss may be another industry’s gain. Who knows what prospect will tug next on Johnson’s line?

“I’ll just keep my eyes open,” says Johnson, “for an exciting opportunity that’s fun, financially rewarding, and challenging.”