Structural & Behavioral Remedy Analysis

USA320Pilot

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May 18, 2003
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The settlement between the DOJ and the two companies is expected by most analysts to do little to change the competitive position of what is now on track to become the world's largest carrier. Tom Horton told employees he was “pleasantly surprised” at the settlement and the deal will allow the combined company to “capture (the) financial synergies” of the confirmed POR. Doug Parker believes the settlement is “fantastic news (and a) huge win.” Here are more of the settlement details. 

Structural Remedies

Slot Divestiture:

DCA – The divestiture will be 104 Slots or 52 takeoffs/landings per day. This includes 8 slot pairs currently leased by AA to JetBlue. The combined company will reduce its daily flights from 294 to 250 per day. There will be no change to mainline flying and the reductions will be in regional flying. Once slots are reduced the New American will re-optimize its schedule with the least profitable flights eliminated. JetBlue is required to buy from the New American the currently leased 8 slot pairs. The new AA cannot re-acquire DCA slots in the future without DOJ approval.

LGA – The divestiture will be 34 Slots or 17 takeoff/landings per day. This includes 5 slot pairs leased by AA to Southwest. There will be a reduction of 12 flights per day from the current schedule, which like DCA will be regional jet flight reductions. The combined company will reduce its daily flights from 175 to 163 flights per day. Southwest is required to buy from the New American the currently leased 5 slot pairs. In addition, the New American will obtain some JFK slots from JetBlue.

Gate Divestiture: 

BOS – 2 gates will be given back to MASSPORT. Scott Kirby told employees at the CHQ Townhall meeting that the business plan calls for the company will give up all or most of AA’s current gates.

DAL – 2 gates will be returned to airport authority. These 2 gates are currently leased by AA to Delta. This is a loss of future opportunity with the pending Wright Amendment change.

ORD – AA has 69 and US Airways 3 gates in Chicago. It is expected the combined airline will give up the 3 US Airways gates and all current operations can operate out of AA’s 69 gates.

MIA – Miami is not a gate constrained airport and the loss of gates will have no impact.

LAX – This is the most painful gate divestiture. The gates that will be given up are 2 gates currently operated by US Airways. Local station personnel are indicating US Airways will move its remaining gates from Terminal 1 to Terminal 3. LAX is projected to be the new company’s principal trans-pacific hub. 

Divestiture Timeline: There will be a 90-day auction and then another 90 days for the slot, gate, and facility divestitures for a total of 180 days to complete the divestitures. 

Behavioral Remedies:

Hub flying – All current hubs will remain in service for 3 years, but there is a “force majeure” clause.

Small City Flying - All current cities that have service for the states that signed onto the lawsuit will maintain service to all of their cities for a period of 5 years. This language was drafted by the State AGs. 

There are no ancillary, pricing, or advantage fare restrictions. 

Notes:

· AA and US Airways will eliminate about 15% of their combined DCA and 7% of their LGA flights. The settlement permits the DOJ to choose a list of low-cost carriers as qualified bidders for the slots. JetBlue, Southwest, Spirit, Virgin America and others are expected to bid aggressively for the divested slots/gates and the proceeds will go to the New American. Fitch Ratings concluded the merged airline will maintain "a competitive advantage in the D.C. market."

· An article said, “The airlines currently compete from Reagan National to both Raleigh and Nashville, and can reach at least a third of the required slot divestiture total by simply discontinuing the redundant flights and selling those slots. American was not using five of the 17 slot pairs it is required to sell at New York's LaGuardia, and AAG can easily shed a few of US Airways' 13 daily nonstops from New York to Philadelphia or the two airlines' combined 18 daily flights to Charlotte to appease the government yet not damage its core operations.”

· Based on the current stock prices the deal will increase in value from about $11 billion to $17.5 billion.

· Judge Kollar-Kotelly has approved the settlement in the antitrust lawsuit. Judge Lane has scheduled a hearing for 10:00 am on November 25th to approve the settlement as part of the confirmed POR. Tom Horton does not expect any challenges. It takes approximately 14 days to execute a confirmed POR and complete the legal and financial actions necessary to close the deal. The merger could close on or about December 9th

· The customer cutover date where the two companies will begin common branding will be January 7, 2014.

· USAPA’s NAC is meeting with the company today on MOU implementation talks. More information on retro/bonus payment and specific implementation plans will be announced shortly. 

Members of the “executive suites” held Townhall meetings. Click on the links below to listen to these webcasts:

Tom Horton and Doug Parker DFW Townhall Webcast: November 12, 2013

https://wings.usairways.com/uswings/...wnhall_nov_dfw

Scott Kirby PHX Townhall Webcast: November 12, 2013

https://wings.usairways.com/uswings/...wnhall_nov_phx 
 
I've got that box of kleenex standing by for our favorite World Traveler. 
 
Maybe his favorite airline will sue the DOJ for their anti competative behavior, i.e. not giving Delta back the DCA slots they gave up to get the slots in LGA.
 
For LGA could US/AA eliminate/reduce the following routes to meet the divestiture requirements:
 
CLT to LGA on AA metal - 5 fligths a day today
PHL to LGA on US metal - 14 flights a day today
 
For DCA could US/AA eliminate/reduce the following routes to meet the divesiture requirements:
 
RDU to DCA on AA metal - 7 flights a day today
BNA to DCA on AA metal - 5 flights a day today
JFK to DCA on AA metal - 6 flights a day reduce to 2 flights per day
PHL to DCA on US metal - 10 flights a day reduce in half
then cut a random mainline flight to various cities in the northeast/florida to get the rest of the slots
 
None of those routes will be eliminated. Reduced, yes but none of them will go away entirely.
 
They are being eilimanted just consolidated - for example both AA and US fly RDU to DCA upgauge the aircraft and free up slots
 
Trader thats awfully nice of u to get kleenex you mean to say dl would sue the doj to effectively block the us merger so that they can be kingmof the world conquerers!
 
jcw said:
For LGA could US/AA eliminate/reduce the following routes to meet the divestiture requirements:
 
CLT to LGA on AA metal - 5 fligths a day today
PHL to LGA on US metal - 14 flights a day today
 
For DCA could US/AA eliminate/reduce the following routes to meet the divesiture requirements:
 
RDU to DCA on AA metal - 7 flights a day today
BNA to DCA on AA metal - 5 flights a day today
JFK to DCA on AA metal - 6 flights a day reduce to 2 flights per day
PHL to DCA on US metal - 10 flights a day reduce in half
then cut a random mainline flight to various cities in the northeast/florida to get the rest of the slots
 
+ the slots AA currently leases to other carriers that are part of the divestitures.
 
This is why I keep saying the slot divestitures are not all that bad in the grand scheme of things.  My guess is DP analyzed this as well and came to the conclusion that offering them up to get the merger done without a trial made sense.
 
Our union rep told me yesterday that when it boils down is that the slots that us got from dl are the ones being divested I dont know how tru that is