Commuter Regional Airline News, Phillips Publishing, Inc, Vol. 10, No. 4

APPLETON, WI — Air Wis shareholders last Thursday overwhelmingly endorsed a merger proposal from the United Express' major airline partner, United Airlines. Despite months of controversy a series of legal actions and a competing offer from American, shareholders in the end opted for the merger first announced last September. Under the proposal, United's parent company, UAL, will pay some $78.8 million for Air Wis Services, which will be absorbed into UAL as a distinct subsidiary. The transaction involves a stock swap under which .0606 share of UAL stock will be exchanged for each share of Air Wis stock.

Though the precise tally of votes was not yet available at presstime, Air Wis officials said the merger was "overwhelmingly" approved. One key to the success of the deal was a change of heart in Air Wis' largest single shareholder, Heine Securities, of Short Hills, NJ, which owns nearly 10% of the approximately nine million outstanding shares. Despite early and vehement opposition to the deal and a pledge to oppose it, Heine in the end voted by proxy to endorse the merger plan. Contacted after the vote, a company spokesperson refused to comment on the company's decision. Heine was not represented at the actual shareholder's meeting here, at which several hundred shareholders gathered to ask questions and voice concerns over the deal.

Kidder Peabody Analyst Sam Buttrick said in the end a dramatic rise in UAL stock price since the merger's announcement helped win institutional support for the merger plan. Nevertheless, he was critical of Air Wis management. "You don't sell at the bottom period," he said. "This outcome is a true victory for Air Wis employees and management only and a mediocre outcome for shareholders," he added. Buttrick cited Air Wis' cost structure as the key to its problems and said he felt an innovative management team could have successfully restructured and repositioned the carrier. There was little doubt that as the merger came down to the wire, Air Wis was in dire financial straights. "Air Wis has pretty well run itself down. It's weak," said County NatWest Securities USA Rose Ann Tortora-Mallet. Absent a bidding war that never materialized, management was faced with trying to play doctor and going for a "miracle cure," or trying to go it alone at Chicago without help from a major, a move she termed "suicidal."

Air Wis President and CEO Bill Andres, when asked about the relatively quiet end to the turmoil surrounding the agreement said "reality" was, in his opinion, the largest single factor affecting the outcome of the vote, a position echoed by Senior Vice President and Chief Financial Officer Bruce Hall. Both Hall and Andres noted that given the state of the industry and the possibly catastrophic consequences of a failure to approve the merger, shareholders had little choice but to take the deal.

**Andres Points To Lack Of Revenues**

Andres also rejected criticism that Air Wis management allowed its major partner to gut the airline and to then pick it up at firesale prices. "Those critics don't know what...they're talking about," said Andres, noting that analysts frequently focused on single aspects of the operation, while ignoring the fact that the airline industry as a whole is "in the toilet." The problem is not the relationship with United or the airlines' marketing agreement, said Andres, rather it is a lack of revenue due to the industry wide slump. Andres noted Air Wis missed its 1991 revenue goal by $21 million rejecting suggestions that had United not raided some of Air Wis's more lucrative routes, the airline would not have been forced to court a buyer. "Anyone who looked at it understood this was best," Andres said of the merger, saying he can look in the mirror every day and know that he did his best to keep Air Wis viable. In answering questions from shareholders, Hall said if the merger were not approved, Air Wis would face a dire cash crisis and that existing working capital reserves could be depleted within months, possibly leading to bankruptcy.

The overriding theme of the meeting was that faults of the deal and the past successes of Air Wis aside, shareholders were unlikely to realize the roughly $9 per share represented by the deal under any other scenario contemplated, including a sale of assets to American or an attempt to keep the airline afloat as as independent entity. As in earlier SEC filings, Hall said the American bid would have substantial tax liabilities and would leave a sharply downsized Air Wis to try to fend for itself. He rejected the American bid as an attempt to buy the airline's "crown jewels" namely its coveted and valuable O'Hare jet slots, without protecting either the remaining airline or its shareholders. "Anyway we looked at it, the shareholders didn't come out on the right end of it," he said. The roughly $9 per share value of the deal is a 50% premium over book values of the airline, noted Hall.

Less than two hours after the meeting was called to order, Chairman Preston Wilbourne, who chaired the meeting, announced the required two-thirds majority of shareholders had endorsed the merger, and pronounced an end to Air Wisconsin as it had been known. "This is the best thing that could happen to this company, not only for the shareholders, but for the employees and the communities we serve," he said.

The actual merger will be concluded quickly, possibly as early as this week, said Hall. Details of what United plans to do with the operation were not discussed in full and should become more clear in the next month. Hanging over the deal is a February 10 court date in the US District Court for the Southern District of New York at which American Airlines will argue that the merger violates anti-trust law. However, Air Wis officials expressed little concern about the case, noting the Justice Department reviewed the merger proposal without raising objections, and the court sided with Air Wis and United in rejecting American's claim that securities laws were violated in conducting the merger. (C/R News, January 20, 1992, page 2) After turning in record profits of $17 million in 1988, Air Wis fell on hard times, and the red ink began to flow. In 1989, the airline posted a $1.34 million operating loss, followed by a $4 millon deficit in 1990. Losses in 1991 are expected to top $30 million when finally tallied, and officers of the company are predicting another struggle, and likely a large yearend loss in 1992.

© 1992 by Phillips Publishing, Inc.