ATLANTA (AP) - ValuJet Airlines, whose public image has suffered since a May 1996 crash in the Florida Everglades, is buying AirTran Airways and will drop the ValuJet name once the deal is completed.
The deal, announced today, will be accomplished though a stock swap valued at $61.8 million.
The merger between ValuJet Inc. and AirTran's parent, Orlando, Fla.-based AirWays Corp., is subject to approval by shareholders and regulators.
A source close to the merger confirmed that ValuJet will drop its name once the merger is complete.
The new holding company will be called AirTran Holdings Inc. The location of its headquarters is under review, although Orlando is the leading candidate, the announcement said.
ValuJet has been losing money ever since the May 11, 1996, crash of Flight 592, which killed all 110 people on board. The airline became the subject of an intense safety review after the crash and was grounded by the Federal Aviation Administration for more than three months.
Analyst Steven Lewins, who follows ValuJet for Gruntal & Co. in New York, said the merger is risky because both companies are financially troubled. He projects that ValuJet will lose 10 cents per share in the third quarter and said other analysts have predicted AirTran will lose 12 cents per share.
"I think that it's always risky when two troubled companies try to increase their critical mass," he said. "I would be more comfortable if ValuJet got its own house in order first.
"Two little airlines in two different cities ... we'll have to see."
As for dropping the ValuJet name, Lewin said, "I would have done that a long time ago."
"I think it's a good idea that they change their name," said Mark Wegner of Tampa, Fla., who was flying ValuJet today to Newport News, Va. "It sounds like a cheap name, and it doesn't represent them at all because they treat you really well."
Teresa Meadows, a ValuJet customers service representative in Atlanta, said she was excited about the merger but sad about the name change. "I think it's a positive name, since it has been able to come back after the incident," she said.
Officials of the two companies planned a news briefing later today in Orlando.
The combined operation would have 2,742 employees and serve 46 cities with 40 aircraft and 238 peak daily departures.
Robert D. Swenson, AirWays chairman and president, will be the non-executive chairman of the new company, and ValuJet President D. Joseph Corr will be president and chief executive officer.
The announcement didn't say what role ValuJet Chairman Lewis Jordan will play. Jordan, who gave up daily control of the airline when Corr took over in November, took the lead in trying to restore public confidence in ValuJet after the crash.
"This agreement provides an excellent opportunity to combine two complementary business plans and provide access to reliable service and affordable fares to large markets currently served by ValuJet and mid-sized cities with AirTran service," Corr said.
AirTran serves 23 mid-size cities from Orlando. It will have 11 Boeing 737 aircraft by the end of July.
ValuJet serves 24 cities from Atlanta with a fleet of 30 aircraft.
The merger is expected to be completed within four months.
Terms of the deal call for ValuJet to pay one share of its stock for each AirWays share. Based on Wednesday's closing stock price, that comes to $61.8 million.
The stocks of both companies rose this morning on the Nasdaq Stock Market. ValuJet shares rose 371/2 cents to $7.18, while AirWays shares rose $1.25 to $6.621/2 .
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