- Jan 27, 2003
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Posted on Sat, Jan. 10, 2004
American probably not interested in rival's shuttle
By Trebor Banstetter
Star-Telegram Staff Writer
FORT WORTH - In 2001, American Airlines was poised to pay $1.5 billion for much of US Airways' East Coast shuttle service, which dominates business travel between Boston, New York and Washington, D.C.
The acquisition, which then-Chief Executive Don Carty called a "key strategic asset," fell apart. But three years later, as US Airways once again shops its Northeast shuttle, American is unlikely to repeat its attempt to buy the operation, a longtime industry analyst said Friday.
"I don't believe that American Airlines would be a significant bidder for the shuttle," said Julius Maldutis, president of the consulting firm Aviation Dynamics in New York. "American's focus is probably on internal expansion rather than going the acquisition route."
Speculation about the sale of some of US Airways' most valuable assets began this week when The New York Times reported that the carrier was at risk of defaulting on a $900 million government-backed loan. Later in the week, US Airways Chairman David Bronner told several news organizations that the airline had hired investment bank Morgan Stanley to identify potential buyers before a March meeting with the Air Transportation Stabilization Board, which oversees airline loans.
Bronner said the carrier is considering selling its East Coast shuttle, some of its regional operations and a major hub, such as Charlotte, N.C.; Pittsburgh; or Philadelphia, to raise cash.
When the shuttle was last on the market, American was flush with cash from the booming economy and looking to expand. It coveted the shuttle because of its gates and takeoff and landing slots at congested Northeast airports. But its deal collapsed when the Transportation Department blocked United Airlines' bid to buy the remaining portions of US Airways.
Since then, American's financial state has changed dramatically. The airline has lost more than $6 billion over the past three years and was nearly forced to file for bankruptcy last year.
A costly acquisition doesn't fit well with the airline's turnaround plan, which emphasizes cost-cutting, simplifying operations and boosting efficiency, industry observers said.
Although he wouldn't comment specifically on US Airways' shuttle, spokesman Roger Frizzell said American will examine strategic opportunities that arise.
And some industry experts said American might make a play for the shuttle if it felt forced by a competitor -- primarily Delta, which also operates a Northeast business shuttle.
But sources close to the airline said that although it's monitoring developments, American isn't in negotiations with US Airways. And they say the threat to sell the shuttle might be a negotiating tactic to squeeze more concessions from US Airways' employees.
"At this point, it's hard to even know how serious this is," one industry source said.
Factors that make the shuttle less attractive for American today include:
• The price tag. Although American was willing to spend $1.5 billion for about half of the shuttle's assets in 2001, the purchase today could significantly deplete the carrier's cash cushion, which stood at about $3.3 billion at the end of the third quarter.
Under current loan agreements, American could be forced into bankruptcy if its cash level drops below $1 billion.
American's debt load is already at record levels, reaching about $23 billion, including aircraft leases, as the carrier borrowed money to subsidize losses.
"I don't know where American would get the money to spend on this," said David Ryter of the Air Line Pilots Association, which represents pilots at American Eagle, the carrier's regional affiliate.
• The complexity. American has been meticulously reshaping its route structure, slashing unprofitable routes and boosting service in moneymaking markets -- including launching a smaller business shuttle on the East Coast using regional jets.
Integrating a large piece of US Airways' operation into American's new structure could be difficult and costly, Maldutis said.
"American faces a lot of challenges right now," he said. "Why undertake another headache?"
• The airplanes. US Airways operates many of the shuttle flights with Airbus A319 aircraft, a type American does not have in its fleet.
American has been working to reduce the number of different airplanes in its fleet, to cut training and maintenance costs.
"American has spent the last two years trying to remove fleet types," Ryter said. "I can't imagine them picking up a new one."
• The employees. American's last two airline acquisitions -- TWA and Reno Air -- resulted in labor headaches, as the airline and labor leaders battled over how to integrate the new workers into American's unions.
American executives are unlikely to want a labor struggle as they work to repair relations with employees after last year's bitter fight over concessions.
Still, industry observers cautioned that it's hard to rule out any possibility in the turbulent, highly competitive environment.
"There's no question that it's a valuable asset," Maldutis said. "I just have a lot of doubts that American would be very interested right now."
American probably not interested in rival's shuttle
By Trebor Banstetter
Star-Telegram Staff Writer
FORT WORTH - In 2001, American Airlines was poised to pay $1.5 billion for much of US Airways' East Coast shuttle service, which dominates business travel between Boston, New York and Washington, D.C.
The acquisition, which then-Chief Executive Don Carty called a "key strategic asset," fell apart. But three years later, as US Airways once again shops its Northeast shuttle, American is unlikely to repeat its attempt to buy the operation, a longtime industry analyst said Friday.
"I don't believe that American Airlines would be a significant bidder for the shuttle," said Julius Maldutis, president of the consulting firm Aviation Dynamics in New York. "American's focus is probably on internal expansion rather than going the acquisition route."
Speculation about the sale of some of US Airways' most valuable assets began this week when The New York Times reported that the carrier was at risk of defaulting on a $900 million government-backed loan. Later in the week, US Airways Chairman David Bronner told several news organizations that the airline had hired investment bank Morgan Stanley to identify potential buyers before a March meeting with the Air Transportation Stabilization Board, which oversees airline loans.
Bronner said the carrier is considering selling its East Coast shuttle, some of its regional operations and a major hub, such as Charlotte, N.C.; Pittsburgh; or Philadelphia, to raise cash.
When the shuttle was last on the market, American was flush with cash from the booming economy and looking to expand. It coveted the shuttle because of its gates and takeoff and landing slots at congested Northeast airports. But its deal collapsed when the Transportation Department blocked United Airlines' bid to buy the remaining portions of US Airways.
Since then, American's financial state has changed dramatically. The airline has lost more than $6 billion over the past three years and was nearly forced to file for bankruptcy last year.
A costly acquisition doesn't fit well with the airline's turnaround plan, which emphasizes cost-cutting, simplifying operations and boosting efficiency, industry observers said.
Although he wouldn't comment specifically on US Airways' shuttle, spokesman Roger Frizzell said American will examine strategic opportunities that arise.
And some industry experts said American might make a play for the shuttle if it felt forced by a competitor -- primarily Delta, which also operates a Northeast business shuttle.
But sources close to the airline said that although it's monitoring developments, American isn't in negotiations with US Airways. And they say the threat to sell the shuttle might be a negotiating tactic to squeeze more concessions from US Airways' employees.
"At this point, it's hard to even know how serious this is," one industry source said.
Factors that make the shuttle less attractive for American today include:
• The price tag. Although American was willing to spend $1.5 billion for about half of the shuttle's assets in 2001, the purchase today could significantly deplete the carrier's cash cushion, which stood at about $3.3 billion at the end of the third quarter.
Under current loan agreements, American could be forced into bankruptcy if its cash level drops below $1 billion.
American's debt load is already at record levels, reaching about $23 billion, including aircraft leases, as the carrier borrowed money to subsidize losses.
"I don't know where American would get the money to spend on this," said David Ryter of the Air Line Pilots Association, which represents pilots at American Eagle, the carrier's regional affiliate.
• The complexity. American has been meticulously reshaping its route structure, slashing unprofitable routes and boosting service in moneymaking markets -- including launching a smaller business shuttle on the East Coast using regional jets.
Integrating a large piece of US Airways' operation into American's new structure could be difficult and costly, Maldutis said.
"American faces a lot of challenges right now," he said. "Why undertake another headache?"
• The airplanes. US Airways operates many of the shuttle flights with Airbus A319 aircraft, a type American does not have in its fleet.
American has been working to reduce the number of different airplanes in its fleet, to cut training and maintenance costs.
"American has spent the last two years trying to remove fleet types," Ryter said. "I can't imagine them picking up a new one."
• The employees. American's last two airline acquisitions -- TWA and Reno Air -- resulted in labor headaches, as the airline and labor leaders battled over how to integrate the new workers into American's unions.
American executives are unlikely to want a labor struggle as they work to repair relations with employees after last year's bitter fight over concessions.
Still, industry observers cautioned that it's hard to rule out any possibility in the turbulent, highly competitive environment.
"There's no question that it's a valuable asset," Maldutis said. "I just have a lot of doubts that American would be very interested right now."
