Last week the New York Times broke the news that US Airways and United Airlines are once again discussing consolidation or a merger. This is the 5th time in the last 15 years the parties have looked at completing a corporate combination. There was the 1995 attempt between Seth Schofield and Gerry Greenwald, the 2000 attempt by Stephen Wolf and Jim Goodwin, Dave Siegels attempt to acquire United in 2002, which was code named Project Minnow (see information in the link below), the 2008 attempt by Doug Parker and Glenn Tilton, and apparently the 2010 attempt once again by Parker and Tilton.
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It almost seems as if merger talks have never really stopped between these two companies.
Parker and Tilton are two of the industries strongest supporters of consolidation. According to the Financial Times, the US Airways-United merger would help the combined company shed unprofitable routes and excess costs. In 2008, the airlines had targeted about $1.5 billion in synergies, which is why I believe the two CEOs want to consolidate or merge.
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There have been hundreds and hundreds of articles written on the potential deal. Here are some interesting points and the source:
1. According to Reuters Goldman Sachs and JPMorgan Chase & Co are advising United, several people familiar with the matter said. Citigroup Inc is advising US Airways, the sources said.
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2. CBS MarketWatch reported J.P. Morgan analyst Jamie Baker (the same company whose IBs are advising United) said he thinks a United-US Airways merger would be less complicated than a deal with Continental, largely because of disparate labor cots, fleet structure and more difficult regulatory approval. "We've always felt consolidation was more likely between two airlines with low and commensurate wages than between higher cost, non-commensurate structures," Baker said in a note.
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3. The timing of the news leak is interesting. US Airways and Delta currently have the Slot Swap agreement pending approval by the Obama Administration. I have heard the parties expect a DOT decision by May 1, which could be the reason US Airways and United are waiting to announce their merger MOU.
4. By waiting for the DOT to announce their Slot Swap decision before the merger announcement US Airways and United would have one regulatory hurtle complete.
5. It is my understanding the Slot Transaction has an exit clause where either US Airways or Delta can back out of the deal if a merger is announced.
6. It is unclear how US Airways will want to proceed with the Slot Transaction if a merger is announced; however, one option being discussed is canceling the deal and making LGA a Star Alliance Domestic Hub. US Airways current LGA terminal has 22 gates and 25 parking spots. If all four LGA Star Alliance carriers combined operations in US Airways terminal US Airways mainline could operate out of 7 gates, United could operate out of 5 gates, Continental could operate out of 2 gates, and Air Canada could operate out of 2 gates. This would leave 6 mainline gates and 9 parking spots that could be used by US Airways and United Express.
The companies could offer Star Alliance mainline service out of the same building to Charlotte, Denver, Chicago OHare, Cleveland, Houston, Montreal, and Toronto, Shuttle service to Boston, and Washington National, and US Airways/United Express service to many East Coast markets with a large connecting operation.
However, this idea would likely have huge anti-trust implications between US Airways current Express operation and Continental Express EWR operation if a United US Airways merger was announced since United and Continental have anti-trust immunity in their alliance.
Meanwhile, the day immediately following the New York Times article on the merger the Washington Business Journal indicated the MWAA (Metropolitan Washington Airport Authority) tried to gauge local impact of United-US Airways deal. The periodical said, "Leaders of the Washington areas airports met Thursday with officials from United Airlines and US Airways to figure out how a possible merger between the companies would play out on the runways of Dulles International and Reagan National airports. James Bennett, the outgoing president and CEO was among the local contingent in Chicago on Thursday to meet with the airlines officials, said authority Chairman Charles Snelling."
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The area most analysts believe would have the largest anti-trust issue(s) is the Washington market. It appears the US Airways and Uniteds management team is ahead of this issue by including the MWAA in early on discussions to gauge their support of the proposed deal to help lobby the federal government and to offer anti-trust solutions early on.
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7. Merger discussions are apparently moving forward and heating up. According to the Wall Street Journal in its Sunday, April 11 online edition the discussions are still at a "very sensitive stage," said the report, published on The Wall Street Journal's Web site. The talks are very serious, but the report cited one person close to the transaction said the talks could just easily fall apart as lead to a transaction between the two airlines.
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8. Interestingly, on Sunday USAPA President Mike Cleary and Vice-president Randy Mowery flew to Phoenix to meet US Airways management to be briefed on the pending merger. In an email to US Airways pilots on Tuesday, March 13, USAPA said, Due to the late arrival of USAPA President Mike Cleary and Vice President Randy Mowrey in CLT after a briefing in PHX yesterday with US Airways management, today's scheduled BPR meeting will not start until 1:00 pm EDT. However, some members of the Board will be available for informal discussions with line pilots starting at 10:00 am.
Ted Reed of TheStreet.com reported, Top US Airways executives met with the airline's pilot leaders Monday to discuss the state of merger talks with United. The purpose of the meeting was to once again underscore USAPA's willingness to work cooperatively with our companys management to facilitate any transaction that brings true value to all the potential stakeholders, including our pilots," said the US Airline Pilots Association in a brief statement. USAPA president Mike Cleary said the union will work with the carrier to evaluate any potential transaction. The meeting included Cleary and union vice president Randy Mowrey, as well as US Airways CEO Doug Parker, President Scott Kirby and COO Robert Isom.
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I believe it is likely that Cleary and Mowery signed confidentiality agreements with management and they cannot disclose the information presented in the briefing; however, it appears that merger negotiations between the two companies have moved far enough along to at least engage the MWAA and USAPA.
9. One topic that has not been discussed in the 1998 US Airways East Pilot Change of Control Provision, which was altered in the 2002 Restructuring Agreement. This clause permits East pilots to snap back to Parity Pay Rates plus a 4.5% wage increase if the company changes control. This would take A330 Captain rates up to about $350 per year and A321 Captain rates up to about $245 per hour, almost doubling pay. US Airways East pilot labor expense would increase by about $400 million per year, which is unsustainable.
I find it interesting that there is not a lot of discussion about this issue and USAPA has remained somewhat quiet and non-adversarial.
In an April 9 update to the pilots the union said, Recent media reports speculating on a potential merger between US Airways and United only confirm that Doug Parkers crew news change of control references are a harbinger that bears an undeniable message - that the success of any merger hinges on Management recognizing their obligations to us. It is our absolute responsibility to fully appreciate the potential implications of this purported combination and to ensure that our interests are not allowed to be used as bargaining capital under any circumstances. It is paramount that if a merger is to receive our support it must fully recognize the contributions of all US Airways Pilots. We must openly and steadfastly demonstrate our firm understanding of this ideal to all interested parties with absolute conviction, lest we encourage ill-fated opportunism to the detriment of all involved. The pilots of US Airways bring irreplaceable capital to the bottom line of any proposed merger and have substantial value to offer not only to the airline parties but especially to our fellow pilots on the other side of the deal. These are not merely trite words but instead are firm facts, easily demonstrated. Your union leadership is actively involved in discussions with Management and the United Pilot leadership to build the foundation that will carry these facts forward.
Its unclear what the unions leadership is thinking, but I believe this one issue has the potential to derail the merger and create very serious consequences for US Airways pilots; along with every other company employee.
But, Business Week reported US Airways has some pilots working under a labor contract that includes change-of-control provisions that would boost expenses in a merger, and that could be avoided by making that airline the acquiring company, said Robert W. Mann, owner of consultant R.W. Mann & Co. in Port Washington, New York. There are some real cost-oriented poison pills that, if they were triggered, would make it very unattractive, Mann said.
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In conclusion, there is much at stake and I believe it is incumbent upon labor at both US Airways and United to work with management to make the proposed merger succeed. The economic benefits are significant for all concerned. Now is not the time for USAPA to maintain its adversarial approach with management and it is way past the time for Labor and Management at both companies to work together with labor.
Regards,
USA320Pilot
Or, it could that joker "aviation expert" (I can't remember his name right now) who it seems like has been saying once a quarter for the last 6 or 7 years that this next quarter is the one where US Airways finally goes under.
