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Midway to sell Philly hub to USAir for $67.5 million

By NENA BAKER UPI Business Writer

PHILADELPHIA -- Midway Airlines said Friday rising fuel costs are forcing the sale of its 11-gate Philadelpia hub, established last November with fanfare and fare-slashing, to USAir Group Inc. for $67.5 million.

The transaction represents a $30 million loss to Chicago-based Midway, but to continue the Philadelphia hub would be a threat to the airline's viability, said President Thomas Schick,

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Midway, the nation's 14th-largest airline, made Philadelphia its second hub with 61 daily flights after acquiring gates and equipment in 1989 from Eastern Airlines, which was reorganizing under federal bankruptcy protection.

'We continue to believe our Philadelphia strategy was the right move at the right time,' Schick said. 'But the strategy has been effectively undermined by the Gulf crisis.'

Midway paid Eastern $210 million for the Philadelphia gates, 16 DC-9 jets, landing slots at New York and Washington, and ground equipment.

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Schick said rising fuel prices have tacked on $10 million to Midway's monthly operating costs, which is just too much for the financially struggling carrier to handle. The airline lost $20.7 million in 1989 and ran a deficit of $22.9 million for the first half of 1990.

Schick said Midway, which had predicted it would post a modest 1990 fourth quarter profit before the Iraqi invasion of Kuwait Ayg. 2 caused a frenzy in world oil markets, now expects losses for the remainder of the year.

The transaction, which requires regulatory approval, is for 11 gates at Philadelphia International Airport and related facilities including maintenance and cargo buildings, baggage claim areas, ticket counters and an executive club, Schick told a news conference.

Some of Midway's 810 Philadelphia employees stand to lose their jobs, Schick said, although many will be transferred by the airline.

For Washington-based USAir -- already the largest passenger carrier out of Philadelphia with 15 gates, or 30 percent of the airport's 50 gates, and 260 daily flights -- the deal, if approved, is something of a break.

USAir last year offered Eastern Airlines $70 million for eight gates at Philadelphia and two Canadian routes, but the deal was quashed by regulators concerned about USAir's dominance.

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A USAir spokesman said the airline has few concerns about the deal getting past the watchful eyes of regulators now.

'It's a different context,' said USAir spokesman David Shipley. 'Philadelphia is building a new terminal building that will add as many as 13 new gates making it possible for any airline to establish a hub in Philadelphia.'

The new terminal is scheduled to open next February.

Representatives of Midway, which blazed into Philadelphia one year ago declaring its desire to become the city's 'hometown airline' and offering cut-rate fares that competitors scrambled to match, said Philadelphia operations now account for one-sixth of its business.

Schick said as Midway's Philadelphia hub winds down over the next six months, the airline will redeploy jets to build up its Chicago hub, from which it will add service to 14 destinations.

Midway said it will operate a full schedule from Philadelphia until Jan 8., at which time it will discontinue service between the city and Albany, Buffalo and Rochester, N.Y., Boston, Hartford, Conn., Columbus, Ohio, Las Vegas, New Orleans, Providence, R.I., and Montreal.

Remaining Philadelphia hub service to Chicago, Toronto and several Florida destinations will continue through April 30.

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Midway said it plans to lease two gates at Philadelphia, from which it will provide service to its Chicago hub and some Florida cities.

Like all other major air carriers, Midway has raised its fares 5.3 percent this month and 4.2 percent to go into effect in November because of the northerly march of oil prices.

Midway issued pink slips to 10 percent of its work force, or 560 employees, last month.

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