It's just possible that Western Airlines may join USAir in calling Washington its home town.
Although by no means certain, events over the next few weeks could well propel UNC Resources Inc., a Falls Church company engaged primarily in uranium mining and milling, into a position to bid for and acquire Western, a Los Angeles-based airline that operates just two daily flights from Washington.
There are a lot of ifs in this scenario: if Continental Airlines fails to fight off the attempt by Texas International Airlines to spoil the proposed merger Continental and Western had worked out; if Texas International has sufficient Continental shares in hand to veto the Continental-Western combination at a Continental shareholders meeting scheduled for March 12; if UNC is able to raise the funds necessary to make an offer Western shareholders have to consider: if . . . .
UNC made its interest in Western known in December, but its bid appeared to come a little late, and it appeared to many to lack the financial backing it needed to break up the Western-Continental marriage contract. UNC's friendly proposal was rejected by Western and -- despite strong hints to the contrary -- it didn't seem to have the wherewithal -- or desire -- to pursue a hostile takeover, at least then.
But TI's entry as a last-minute suitor for Western's intended partner has significantly changed the situation. Should TI succeed in breaking up Continental's and Western's marriage plans -- as looks likely -- Western is left single and available, although not necessarily willing.
At this point, UNC's intentions are not clear. Its officials are cautious and won't comment about Western. But it's reasonable to assume that UNC's officials and its bankers are studying developments and weighing their options. And some recent actions suggest they may be getting ready to make a move.
Last week, after the Civil Aeronautics Board cleared the way for TI's tender offer for Continental, UNC officials were huddled with Dan A. Colussy, the former Pan American World Airways president, who would become the head of Western if UNC were successful in acquiring it, UNC disclosed before. Colussy also declined to comment on UNC's plans, or his own.
For UNC, Western offers a significant and important opportunity to diversify. Although UNC has advertised itself in the past as "America's largest independent producer of uranium" and can still make that boast, that billing is no longer as impressive as it once might have been. This would seem to be true even if the future of nuclear power is brighter with the election of Ronald Reagan as president, as UNC and other nuclear-related businesses believe.
UNC, like any other company with a natural resource as it major interest, has ups and downs that are not necessarily of its own making. As explained by a Wall Street observer, such a company has fixed costs and an ability to produce. But its activities, and its profits, depend on demand and price. "The demand for uranium is down and the price has been softening," he said. "UNC wants and needs to diversify."
UNC is the holding company for United Nuclear Corp., an energy company engaged mainly in uranium mining and milling. Other divisions engage in the manufacture of nuclear products, such as reactor cores and components for the Navy's nuclear fleet; contract drilling, the manufacture of zirconium alloy tubing and other products for commercial power reactors, and the management of oil and gas leases and real estate mortgage portfolios.
Although generally profitable, the difficulty the company has in tying its fortunes solely to nuclear power was obvious last year. UNC lost $34.2 million in fiscal 1980, partly the result of a spill-related four-month shutdown of its uranium mill at Church Rock and partly the result of a write-off of a Florida venture to extract uranium from phosphoric acid supplied by W.R. Grace & Co. UNC's loss of $34.2 million in fiscal 1980 on revenues of $274 million, compared with profits of $43.8 million on revenues of $291.7 million in fiscal 1979. Earnings from continuing operations fell from $40.7 million in fiscal 1979 to $2.2 in fiscal 1980.
UNC's involvement in uranium also embroiled it in complex litigation arising out of a joint venture with General Atomic Corp. In 1975, UNC sued GAC, seeking to void contracts for the delivery of 27 million pounds of uranium on grounds that they were executed fraudulently and in violation of the antitrust laws. A court decision in UNC's favor has been appealed to the Supreme Court.
Acknowledging what UNC president Keith Cunningham has called "the adverse near-term market conditions" for uranium. UNC has been seeking over the last year or two to reshape the company.
Last year, for instance, UNC sold its coal interest -- a subsidiary called UNC Plateau Mining Co. -- to Getty Oil. The move was considered in line with UNC's diversification program, according to Cunningham, since the funds made available would make possible "a more significant diversification" than Plateau itself represented. The sale brought UNC about $60 million in cash -- some of it went for debt repayment -- and represented a gain of almost $29 million, UNC says.
Last week, UNC got Australian government approval for the sale of a 50-percent interest in Teton Exploration Drilling Co. Pty., Ltd., its Australian exploration subsidary, to an Australian gold mining concern. Under the new ownership arrangement, Teton's exploration activities in Australia will be broadened to extend to minerals other than uranium and it will offer mineral exploration services to others. The deal also gave UNC a pretax profit of about $3.5 million.
Buying Western would be much different, of course. "UNC considers that Western Air Lines, located in one of the nation's major growth areas and possessing one of the industry's most modern fleets, represents an unusual opportunity to profit from a projected economic upturn, and that Mr. Colussy can make the most of this opportunity," Cunningham and UNC board chairman James R. Bancroft told shareholders in UNC's third-quarter report, mailed last week.
Although some Wall Street observers thought UNC did not have the money to buy Western, its chances to borrow the cash for a tender offer may have improved significantly with TI's bid for Continental and it also has more time. The total purchase price for all of Western's stock, if UNC has made an offer that is consistent with its first proposal, would cost about $156 million. But it doesn't necessarily have to go after all the stock, and it could offer a combination of cash and paper.
As of the end of 1980, according to its quarterly report to the Securities and Exchange Commission. UNC had $48 million in cash and marketable securities in hand. Last week, UNC announced that it had begun discussions with N.C.C. Energy Ltd., a London-based energy and minerals company, that could lead to an offer by UNC to acquire N.C.C. Among N.C.C.'s assets are approximately $65 million in marketable securities of publicly-traded energy companies.
UNC also has assets it can sell to raise cash to fund a possible bid for Western. Although he refused to discuss Western at all, Cunningham said in an interview that UNC is talking about selling some of its assets.
"I would say the uranium reserves and uranium operating properties have a current market value of $300-plus million," he said. "And that's only one side of our business."
Could UNC get out of uranium altogether? "That could happen," he said. "We aren't necessarily committed to it, but we are committed to turning over some properties in order to use the capital for diversification into other businesses."
UNC also appears to have been working to increase its credit arrangements.
Although it hasn't been announced yet, sources on Wall Street say a major West Coast bank may replace the Republic National Bank of Dallas as UNC's lead lender in a new credit agreement UNC has worked out. It is believed to be Crocker National Bank.
If UNC does go ahead with a bid for Western, it can pursue it as nonairline companies do without the need of approval from the CAB, which does have to okay the acquisition of one airline company by another.