JetBlue playing hard to get?

[Hopeful]

Thanks FWAAA. I think you hit the nail on the head.
I don't wish anyone to be subject to a job loss. But it seems inevitable.
My point of this post was that JetBlue would probably be a better partner than US.
I also believe that AA could survive as a standalone. Didn't all the others emerge alone BEFORE merging?
No one can predict what an integration might look like.
As for the US/AA merger cheerleaders...just remember this...... "be careful what you wish for."

 

[WorldTraveler]

Actually, yes, I do. AA has in-house capability, and B6 never did. Most of the facility is a sunk cost, and with the right cost structure for labor, it might make sense to do some of the current off-shore overhauls on their A320 fleet in TUL.

The business models are different, but JetBlue has been converging towards the legacy carriers for a while. They just added a tier structure to their FFP, and the growth opportunities have pretty much leveled out. They're boxed in at JFK by slots, pretty much at max in LGB, and like VX, moving into Flyover Country means competing head to head against the hub carriers.

In some ways, it would complete the "B6 is PE" prophesy, in that they'd be gobbled up by a legacy carrier who tried hard to compete against them and eventually just bought them out...

Biggest risk would be the corporate culture. If there was a way to bring B6's culture to AA? It might work. And B6 has a pretty strong leadership team. If replacing AMR's leadership buys union peace, B6 is still the better choice. It provides reasonable growth in critical markets, and has benefits for both enterprises.

all valid points... but it also doesn't change the reality that B6 and AA have very different cost structures. A merger between the two would result in a blending of the cost structure that would be far closer to AA's than B6's - and about 2/3 of B6's network would become unprofitable.

What is the point of buying a company that can't support the growth and network AA needs?

It also doesn't change the fact that B6 and AA combined hold over 2/3 of US carrier slots at JFK. The chances that they would be able to combine their slot holdings in a merger w/o divestitures is somewhere between slim to none.

The same issues that affect DL and AA at LGA and JFK affect AA and US at DCA as well as AA and B6 at JFK.

Those are simple facts.... there is no merger between AA and either B6, DL, or US that would not result in antitrust issues.

Those reasons and others might be part of why B6 is saying they aren't interested even though some people want to keep believing they are just kidding.
.

 

[FWAAA]

Yes, even though DL and NW filed their Ch 11 cases the same day, and everyone knew that they were seeing each other, they both emerged from Ch 11 before merging. UA was out of Ch 11 for several years before tying the knot with CO. US and HP were both in much more precarious positions when they merged as part of US' exit from Ch 11.

Recently, Doug Parker said that one reason that US had to merge with AA before AA exited Ch 11 was so that he could reject unwanted AA assets like gates, ticket counters, and other real estate. That had to be the silliest reason he's given, as most of the unwanted assets would be the US gates and real estate at the AA hubs like JFK, ORD, LAX, DFW and MIA. As AA has its own terminals at those airports, a merged US-AA would not give up AA real estate anyway. There may be a couple of spokes where the combined airline would need one fewer gate, but a merged AA-US isn't about shrinking (although no doubt some would occur). It's about growth and synergy, right? If anything, the combined airline would perhaps need more gates and real estate at key airports.

For example, at Austin, AA uses four gates near the Admirals Club while US has one lone gate (20?) not contiguous to AA's gates. If anything is surplus, it would be the US gate. At IND, US has several gates across the aisle from AA's two gates.

The only place where AA assets could be shed easily are its gates at CLT, PHL and PHX. I don't see the savings from rejecting those leases as sufficient reason to merge US and AA right now.

 

[eolesen]

Bingo. Unless the plan is for US to give up on JFK in favor of PHL...

 

[wings396]

Can't he also reject leases in order to re-negotiate them at a lower cost?

 

[eolesen]

You're assuming AA hasn't already done so. Why do you think US would have more bargaining power with a fleet that's half the size than AA already has with replacement aircraft readiy available?

There are a lot of used aircraft on the market right now. Allegiant just picked up a bunch of A320s for a song. Lessors have the deck stacked against them already, so I don't know where Parker could do better.

 

[wings396]

Wasn't talking about A/C leases, I was referring to what was posted as far as airport facilities etc.......

 

[eolesen]

Again, AA's got more critical mass than US, so what is AA getting rid of in your scenario that they haven't already contemplated doing?

If anything, US should enter bankruptcy to get rid of the duplicate HDQ facilities it won't need, right?

 

[FWAAA]

Can't he also reject leases in order to re-negotiate them at a lower cost?

Sure, but like eolesen said, AA's already wrung the excess costs out of the assets it intends to keep. Parker expressly said that his concern was the duplicate assets that he wouldn't be able to do anything about once AA emerges from Ch 11. And as I point out, those are a pittance compared to the US assets that would be duplicate and not needed (like every US gate and ticket counter and other real estate costs at JFK, LAX, ORD, DFW and MIA. Unless US files a Ch 11 petition before merging with AA, the merged US-AA is on the hook for all of those costs.

If Parker was asserting that he had greater ability to negotiate lower costs for assets that he intends to keep, that would be the height of hubris, as he has zero experience at negotiating in bankruptcy, no? He came on the scene at HP after its Ch 11 and didn't have anything to do with the two bankruptcies at US other than merging with US as US exited Ch11.

 

[gaucho99]

Sure, but like eolesen said, AA's already wrung the excess costs out of the assets it intends to keep. Parker expressly said that his concern was the duplicate assets that he wouldn't be able to do anything about once AA emerges from Ch 11. And as I point out, those are a pittance compared to the US assets that would be duplicate and not needed (like every US gate and ticket counter and other real estate costs at JFK, LAX, ORD, DFW and MIA. Unless US files a Ch 11 petition before merging with AA, the merged US-AA is on the hook for all of those costs.

If Parker was asserting that he had greater ability to negotiate lower costs for assets that he intends to keep, that would be the height of hubris, as he has zero experience at negotiating in bankruptcy, no? He came on the scene at HP after its Ch 11 and didn't have anything to do with the two bankruptcies at US other than merging with US as US exited Ch11.

The way around this is to figure out how many total assets you need in each city and then reject any surplus from the AA end of things. Once you are merged, you are one carrier anyway and you combine what you have left in the same location. For example, suppose AA and US have a combined 20 gates in a particular city and it is determined you only need to keep 15. You reject 5 gates from the AA side and keep all the US gates. Once merged, you will move all your operations to one terminal anyway and the gate space will be combined as one.

 

[eolesen]

But if the goal of US+AA is to compete with DL and UA, why would you decide you only need 20 gates?...

Since real estate in the largest cities is at a premium, most airports have no problem taking back space. In smaller airports? Maybe a little more difficult, but those are the airports served by regional partners, and leases tend to be much shorter terms or have more favorable terms for the airlines since there's a desire for service.

 

[WorldTraveler]

Regardless of whose assets it comes from, it is much more difficult to reject and renegotiate leases outside of BK - which is exactly why Parker said a US-AA merger doesn't make as much sense if it happens outside of BK.

But it is also true that rejecting AA assets probably won't solve the problem because AA is so much bigger than US in most cities outside of US hubs.

I believe AA just accepted leases on about 100 airport facilties and paid what was in arrears. Perhaps you can comment, FWA, but I'm not sure if that means the opportunity to reject leases has passed and there is no further opportunity.
If so, then some of the benefits from a merger are already closing.

Note also that DL and NW took a long time to resolve some airport issues since they merged outside of BK while UA and CO are still working on it in many cities. The issue was/is more colocating facilities in cities where the two airlines are not close to each other and both of their facilities are boxed in by other tenants.

 

[FA Mikey]

But if the goal of US+AA is to compete with DL and UA, why would you decide you only need 20 gates?...

Since real estate in the largest cities is at a premium, most airports have no problem taking back space. In smaller airports? Maybe a little more difficult, but those are the airports served by regional partners, and leases tend to be much shorter terms or have more favorable terms for the airlines since there's a desire for service.

I think this goes to the heart of the problem that there is no plan or solution other than buying AA for its assets. As it has been said time and again. What does usair offer to AA, answer nothing, what does AA offer to usair, the world.

 

[wings396]

Yea OK there Mikey, have another glass of that Koolaide that you have been chuggin for years.

 

[BoeingBoy]

Apparently even Parker realizes that US acquiring AA has a questionable future - he wants the US pilots to drop their change of control language so it won't be a factor if AA acquires US. For those not familiar with the language, it provides a rather large increase in pay if US is acquired and is why the US/HP merger was considered a reverse acquisition.

Jim