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Robert Johnson’s position on the board of directors of US Airways has landed him a piece of the largest aviation merger in history. As part of the multibillion-dollar deal between US Airways Group Inc. and UAL Corp., parent company of United Airlines, the CEO and chairman of BET Holdings II (No. 6 on the be industrial/service list) will acquire routes, departure and landing slots, equipment, and other assets from US Airways to create DC Air. Competitive issues associated with the merger, which was announced in May, necessitated that a significant portion of the current US Airways’ operations out of Washington, D.C.’s Ronald Reagan National Airport be divested.
By launching DC Air, Johnson will make history as the only other African American to own and operate a major regional airline. In 1983, Michael Hollis launched Air Atlanta, which was forced into Chapter 11 bankruptcy in 1987 (see “The Crash of Air Atlanta,” In the News, June 1987). Because of failed airlines like Eastern and Pan Am, many are skeptical DC Air will succeed.
“The fatality rate of new airlines over the last 20 years is 90%,” says Alan Bender, associate professor of aeronautical science at Embry-Riddle Aeronautical University in Daytona Beach, Florida. “It’s extremely difficult to differentiate yourself and make yourself special.”
According to a study conducted by the Boyd Group/ASRC, an Evergreen, Colorado-based aviation consulting firm, “Of all the new carriers (40) between 1978 and 1992 that attempted to break into large-scale scheduled airline service, only two survive today. One is America West, which detoured through Chapter 11 to get here, and the other is Midwest Express.”
Johnson says he’s not frightened by these statistics.
“This is not a new airline,” says Johnson. “I’m taking over existing, desirable routes. We already have operations, pilots, flight attendants, and ground support.”
Other concerns surrounding the DC Air deal revolve around its dependency on the approval of the UAL-US Airways Group $4.3 billion cash merger.
“In my opinion the merger will go through, but with many restrictions. A lot more [restrictions] than just the D.C. divesting issue.” says Bender. “The labor front is a bigger issue.”
In 1995 the two airlines proposed a merger but the plan was rejected after United’s pilots’ lobby exerted pressure. United employees own 55% of the airline, so their approval will be mandatory for this deal to soar.
Johnson stated after a press conference in New York that he did not have any apprehensions about the merger going through, but he admits it’s going to be tough.
“It has to go through congressional hearings and get approval from the Justice Department, but United and US Airways have been working on this for a while,” he notes from his office at BET.
DC Air will be an independent company, separate from the new United-US Airways conglomerate and Johnson’s original enterprise, BET Holdings. It was not disclosed how much of Johnson’s personal funds went into purchasing the US Airways routes, which currently serve 44 cities and bring in about $500 million in revenue. However, it was reported that the assets