2nd UPDATE: Delta, US Airways To Swap Slots

US Airways Group Inc. (LCC) and Delta Air Lines Inc. (DAL) plan to swap 167 pairs of take-off and landing slots at two of the nation's most congested airports, with each airline adding service to small U.S. cities.

The move comes as U.S. airlines have cut capacity to tailor their business to the slowdown in business and leisure travel.

At the same time, airlines are coming under increasing scrutiny from U.S. regulators, especially at New York's LaGuardia Airport, where slots for each take-off and landing are tightly controlled by the Federal Aviation Administration.

The proposal would more than double Delta's non-stop flights at LaGuardia, adding 125 slots, and essentially forming a hub for domestic flights. Delta, the world's biggest airline, already operates an international hub out of New York's John F. Kennedy International Airport.

Delta spokesman Kent Landers declined to comment on how profitable the company expects the transaction to be. The carrier plans to add service to more than 30 small and medium-sized markets.

US Airways will get 42 pairs of slots at Ronald Reagan Washington National Airport, now operated by Delta. It will also acquire rights to fly to two new markets, Tokyo and Sao Paulo. The carrier plans to fly direct to Tokyo from Phoenix and to Sao Paulo from Charlotte.

United Airlines, a unit of UAL Corp. (UAUA), and a partner to US Airways in the Star Alliance, has a hub at Washington's Dulles International Airport.

Delta said the loss of the international flying rights won't affect passenger service.

US Airways will keep a "significant" presence at LaGuardia, the low-cost carrier said, remaining as the third-largest airline there. But it plans to cut 300 jobs at its regional airline subsidiary, Piedmont Airlines, eliminating Express flights. The move is expected to boost US Airways' bottom line by more than $75 million annually, President Scott Kirby said in a message to employees.

US Airways Chairman and Chief Executive Doug Parker said the deal will add service from Washington, D.C., to smaller communities, serving 15 new locations from Reagan National. It will increase seat capacity by one-third through the new flights and use of larger planes.

The swap at LaGuardia will consolidate all of Delta's operations into an expanded main terminal with 11 extra gates. Chief Executive Richard Anderson said increasing presence in New York is a key part of the airline's long-term strategy. Delta plans to invest $40 million at LaGuardia, once the deal is approved.

Landers said Delta will ask the FAA to grant a waiver from temporary slot restrictions at LaGuardia. The U.S. Department of Justice and Department of Transportation also need to sign off on the pact.

The airline decided earlier this decade to make New York into a hub, and has made investments in the region to add new routes and expand advertising. The New York market - with air service divided among three major airports, LaGuardia, JFK and Liberty International in Newark, N.J. - has been hotly contended in recent years as airlines, including American Airlines, a unit of AMR Corp. (AMR), and Continental Airlines Inc. (CAL) jockey for the right position there and regulators contend with increased flight delays due to heavy air traffic.

Southwest Airlines Co. (LUV), the largest passenger carrier within the U.S., said earlier this year that it will add service at LaGuardia.

-By Ann Keeton, Dow Jones Newswires; 312-750-4120; [e-mail]