Copyright 1995 P.G. Publishing Co. Pittsburgh Post-Gazette November 14, 1995, Tuesday, SOONER EDITION SECTION: BUSINESS, Pg. A1 LENGTH: 967 words HEADLINE: United calls off a bid for USAir; American also says it won't pursue airline BYLINE: Steve Creedy, Post-Gazette Staff Writer BODY: After more than a month of speculation about a possible merger with United Airlines, USAir will remain independent. United's board of directors, facing difficulties convincing the airline's unions and unable to meet their own criteria, yesterday declined to bid for Pittsburgh's largest employer and ended merger discussions. A buyout could have cost thousands of jobs in the Pittsburgh region. Analysts said the United decision and a statement by American Airlines that it would not make a bid unless United moved first effectively ensures USAir's independence for the near future. American last night reiterated its statement but would not comment further. The decision of United to abandon a buyout is likely to slow consolidation in the airline industry. Analysts said the pressure is now off other airlines to move quickly to find partners in order to counteract United's expansion. But consolidation still is seen as inevitable and USAir said yesterday that it will move ahead with plans to transform its route structure and cut costs, including employee wages and benefits. USAir Chairman Seth Schofield said he was committed to keeping the airline profitable, and that talks with United were ''one of several long-term strategic alternatives being examined.'' ''This industry will change in the years head. That is inevitable,'' Schofield said. ''And this airline will be ready and fit to play a leading role in that change.'' United's decision to end the acquisition talks was made by the board of its parent company, UAL Corp., after a six-week financial study and consultations with employee groups at both airlines. UAL Chairman Gerald Greenwald said a confidentiality agreement prevented him from disclosing details of the decision but the board did not believe that a transaction was achievable. ''While our study confirmed a transaction would have significant revenue benefits from increased customer choice, we were disappointed we were unable to satisfy all of the criteria we set for a potential transaction,'' Greenwald said. United had set out four requirements, including a substantial rate of return to current stockholders and the retention of employee ownership at its current 55 percent level. But it was requirements that the deal not endanger United's investment-grade financial rating and that it be supported by the airline's employees that were always seen as the biggest obstacles. USAir would have added considerably to United's debt burden and, as late as Friday, union sources were raising doubts about whether United's employees would accept the deal. ''This is going down to, I think, the fact that they could not give their employees anything more than everything they gave them at the buyout last year,'' said Claire Kendrick, a bond analyst with Donaldson, Lufkin and Jenrette. ''And there was no reason for a pilot or a ground worker to give up any positions of seniority to incoming USAir workers. They had nothing to gain and everything to lose.'' USAir's unions also were facing thorny issues of seniority and possible layoffs. USA Today reported yesterday that an internal United document suggested that more than 4,000 of USAir's 14,225 machinists would lose their jobs in a merger. The Air Line Pilots Association's reaction was guarded last night, saying it does not view the decision as a plus or a minus. ''We believe USAir has tremendous value and there are a number of options open to us,'' said Bob Gaudioso, the newly elected Chairman of ALPA's USAir Master Executive Council. ''We will explore each of these on the basis of the long term prosperity of the company and our pilot group.'' Analysts interviewed last night do not believe that those options include a merger with an airline other than American or United. The advantage to the two airlines of a merger was that there was little overlap between the route systems of either airline and that of USAir. Kendrick said that is not the case with the nation's third biggest carrier, Delta, which overlaps with USAir in the South. ''We don't think anybody else would be in a position to buy it anyway,'' she said. ''Northwest cannot take on any more leverage and Continental should be so lucky as to find a buyer for it.'' Analysts said USAir, which returned to profitability in the past two quarters but has lost more than $ 3 billion in recent years, can survive as a stand-alone carrier but still needs to address its labor costs, which are among the highest in the industry. The airline has introduced cost savings worth more than $ 400 million annually and earlier this year ended labor cost-cutting talks in favor of negotiations on a union-by-union basis. It is due to resume contract negotiations with the International Association of Machinists this week and its pilots union contract expires next May. ''The thing to remember is that the business at USAir is coming along very nicely, the route restructuring efforts and the new system are working out very well for them,'' said S.G Warburg analyst Brian Harris. ''I think that's going to drive strong earnings through next year but long term, by 1997, they're going to have to get labor costs down significantly.'' USAir also needs to move quickly to put a new management in place, said Kendrick. USAir spokesman Rick Weintraub said a committee set up to find a replacement for Schofield would now resume its search. Schofield would stay on until a replacement is found and in place, he said. Weintraub said USAir will continue to fly smarter, cutting costs and working on a more rational labor cost structure. He said one positive effect of the merger talks has been a general recognition of the strength of USAir's East Coast franchise and change in perceptions about the airline.