This could really everyone, is AMR ready?

[Barfbag]

http://www.nytimes.com/2012/09/03/business/economy/us-companies-prepare-in-case-greece-exits-euro.html?pagewanted=2&_r=1&hp

 

[eolesen]

Not sure it's really a serious issue for AMR -- they don't fly directly to ATH. For the few tickets sold in Greece for eventual travel on AA, I'm pretty certain Sabre can handle putting the drachma back in as a currency... I know Amadeus can (that's the system BA and IB manage their availability and fares in) handle it.

The bigger issue will be what would happen to the various economies if Greece and Spain were suddenly out of the Eurozone. There's a lot of trade between countries that right now isn't subject to regional inflation/deflation. That would change overnight.

 

[WorldTraveler]

liquidation is a bit far fetched but IAG has its hands enormously full in the next few years.... even if Spain doesn't leave the Eurozone, the effects of the Spanish economic crisis will continue to pull down BA and IAG overall. A chunk of IAG (not sure if it is 12 or 25%) is owned by Spanish banks and interests that need to sell their stake in IAG - and no one so far is buying. With the possibility that IAG needs to invest in AA in order to keep from losing them, the strategic pressure on BA and IAG is enormous in the coming years - on top of all that is going on in Europe overall, including the need for the European network carriers - all of them - to be much more aggressive in reducing short and medium haul costs.

 

[eolesen]

If IAG needs to start making decisions, I have no doubt they'd try to spin IB out. If the Spanish economy tanks, they don't need the drag on earnings...

 

[WorldTraveler]

very possible... but how easy is it going to be to sell any failing European company in the years ahead, of which there may very well be many in southern Europe?

 

[BoeingBoy]

With the possibility that IAG needs to invest in AA in order to keep from losing them...

There are only two ways that AA won't remain in OW - DL or UA buy AA (very unlikely) or AA liquidates (very unlikely). So the chance that IAG will need to invest in AA to keep from losing them is highly unlikely. IAG may invest in AA via equity financing as a way of helping AA present a better POR, but it is uncertain whether AA will even need that at this point.

Jim

 

[WorldTraveler]

and it is also possible that IAG may invest in AA even if AA merges with US and remains in oneworld to have control over US' decisions (if US mgmt is part of the decision). US and BA had a stronger relationship at one point in the past that went bad....

 

[BoeingBoy]

Possible but not likely - BA can't invest nearly enough to control the BOD, which in turn would control upper management's decisions. If BA invests in an AA/US combination I'd be surprised. In the interview where IAG said it had signed an NDA it declined to say it would invest in an AA/US combination, although it would have been a perfect time to do so. There is also the "minor" detail of there not being an NDA between IAG and US.

Jim

 

[wings396]

and it is also possible that IAG may invest in AA even if AA merges with US and remains in oneworld to have control over US' decisions (if US mgmt is part of the decision). US and BA had a stronger relationship at one point in the past that went bad....

A key factor with the relationship that went bad was the old US management. This had nothing to do with AWA or Parker, and I think that BA knows that. The former deal with BA did very little for US, and gave BA a lot of feed.

 

[WorldTraveler]

Possible but not likely - BA can't invest nearly enough to control the BOD, which in turn would control upper management's decisions. If BA invests in an AA/US combination I'd be surprised. In the interview where IAG said it had signed an NDA it declined to say it would invest in an AA/US combination, although it would have been a perfect time to do so. There is also the "minor" detail of there not being an NDA between IAG and US.

Jim

of course BA won't say whether they will invest.

You-know-who has seats on the boards of two Latin airlines, and they have invested less than 5% in both of them. OTOH, a European airline hasn't exercised its control over a US airline with a much larger share of equity.
The US allows foreigners to have a say in the companies in which they invest - just not a majority say.

Presumably, AA and BA are alread strategically aligned - but it isn't at all clear that they wouldn't need to invest in their partners to keep the oneworld alliance intact.

There are a number of major equity issues up for grabs in oneworld carriers -and it is very much possible that other carriers could choose to act to increase their strategic positions at the risk of other oneworld carriers.

AA's future is still far from clear - and the clarity could well diminish by Wednesday afternoon.

 

[BoeingBoy]

Quoting what you said earlier that I was replying to (emphasis mine):

and it is also possible that IAG may invest in AA even if AA merges with US and remains in oneworld to have control over US' decisions (if US mgmt is part of the decision)..

Having seat(s) on the BOD doesn't mean exercising control - the pilots at both UA and US at one time had a seat on the BOD and look what happened. That's also why there is a limit on the voting equity that can be owned by foreign entities/individuals. You seem to have changed your story to agree without even saying that you agree and somewhat making it sould that I was wrong.

As for the rest of my post, I still feel the same. There isn't much need for IAG to invest in a merged AA/US - while I haven't kept up with AA's monthly financial filings I assume that a combined AA/US would have about $7Billion in cash plus whatever the uncommitted new stock would bring in, quite possibly more Billions since AA is the larger entity and their stockholders would get no new stock.

I can definitely see IAG investing if AA needs it to support a stand-alone plan, assuming AA would need more new investment than it could raise on it's own. Note that this is not a prediction that AA wouldn't be able to raise the equity financing - it would have all the new stock except for that going to creditors and labor available with none being US stockholders trading their LCC shares for XXX shares - but mentioned as a possibility.

Jim

 

[WorldTraveler]

Jim,
I said it IS POSSIBLE. that means one of several options.

I agree w/ 90% of what you have written..... BA would rather NOT invest if they can keep what they have. But the 800 pound elephant in the room is that it is not out of the question that DL COULD choose to top the value of an AA standalone plan or bid against BA - and that may still happen.

I have long believed that AA would emerge from BK on its own.... but it is not going to be anywhere near as easy for it to emerge - merged or standalone - as it was for other airlines in the past.

AA is in a far different competitive environment than existed when other airlines emerged from BK.

Build on that w/ the problems that are going on in Europe - including Spain - and the fact that the industry is globalizing, even if very slowly for a highly regulated, protected industry, and AA's restructuring has global ramifications - that include BA/IAG and oneworld.

the world is not the same as it was 5 years ago when DL and NW emerged from BK as the last two major US network airlines to do so. Expecting the industry - or AA/US - to follow the same steps as DL/NW or UA/CO took is a recipe for failure. AA or US alone or independent cannot be DL or UA - who moved aggressively down strategic paths that are not going to work the same for AA or US. Add in that DL, UA, and WN all have major strategic reasons NOT to see AA or US succeed - that IS the nature of competition- and no one should have any expectation that the next few years will be challenging for AA and US independently or together - at the hands of other competitiors who are in much better financial shape.

 

[BoeingBoy]

Jim,
I said it IS POSSIBLE. that means one of several options.

Not unusual, but you missed the point completely. It was the "control US management" if they ended up running a merged US/AA that was wrong. At best IAG could try to influence managment but by no stretch of the imagination could IAG control management. As you yourself later said, no European carrier has tried to control a U.S. carrier, although Branson tried his best to keep some grip on Virgin America. The DOT wouldn't allow Branson to do it and will not allow IAG to do it. So even with an IAG investment in a merged US/AA, the ATI JV agreement is the only leverage that IAG would have and that presumably works both ways.

As for the rest it's just the usual "DL is the greatest and no carrier can compete" BS. Anyone who has been around this industry and understands it as well as you claim also knows that the situation that exists today can be reversed in a relatively short time. I remember when PanAm was at the pinnicle of the industry, but where are they now? TWA? I remember when EA carried more passengers than any carrier in the world except for Aeroflot - where are they today?

Jim

 

[mike33]

Not unusual, but you missed the point completely. It was the "control US management" if they ended up running a merged US/AA that was wrong. At best IAG could try to influence managment but by no stretch of the imagination could IAG control management. As you yourself later said, no European carrier has tried to control a U.S. carrier, although Branson tried his best to keep some grip on Virgin America. The DOT wouldn't allow Branson to do it and will not allow IAG to do it. So even with an IAG investment in a merged US/AA, the ATI JV agreement is the only leverage that IAG would have and that presumably works both ways.

As for the rest it's just the usual "DL is the greatest and no carrier can compete" BS. Anyone who has been around this industry and understands it as well as you claim also knows that the situation that exists today can be reversed in a relatively short time. I remember when PanAm was at the pinnicle of the industry, but where are they now? TWA? I remember when EA carried more passengers than any carrier in the world except for Aeroflot - where are they today?

Jim

How about the " Proud Bird with the Golden Tail " slogan?..........nothing is forever !!!

 

[WorldTraveler]

And AA was the world's largest airline not very many years ago.