I believe there is about a 75% chance of a settlement between the DOJ, US Airways, and AMR. The principal reasons are:
1. Inconsistent Policy - How can the DOJ not oppose the DAL-NWA, UAL-CAL, & Southwest-AirTran deals from proceeding and not the AMR-US Airways deal?
2. Southwest (and JetBlue & Others) - How can the DOJ omit Southwest as a competitor from their complaint? Southwest carry's more domestic passengers than any other airline in our country.
3. Monopoly - The DOJ asserts that the combined AA & US business enterprise would be so strong that they would dictate pricing. Whether we have 5 carriers or 4 carriers anybody who understands the industry knows if a company increases if the fare is not matched the fare increase dies?
These are just a few of the major problems the DOJ will have if the case proceeds to trial. If there is a settlement I believe it is like to include Structural and Behavioral Remedies.
The Structural Remedy will be slots at DCA around the number UAL & CAL divested at Newark.
The Behavioral Remedies could be an agreement to not reduce service in any market currently served by either company, to not increase ancillary fees, or lead an industry fare increase for a period of time. By not reducing service in any market (for a period of time) the New American and the DOJ would appease legislative demands to not pull out of markets like Tallahassee-D.C. and limit fare/fee increases (for a period of time) unless the increase is a reaction to an industry increase initiated by a competitor.
I believe there are a number of key signals leading towards a settlement that include:
1. Why would the DOJ not submit a brief to the bankruptcy court objecting to AMR's POR confirmation if they wanted to kill the deal? Why not have the court do the Justice Department's work instead of preparing a time consuming and expensive trial?
2. Why would the DOJ and the two companies sign a joint brief filed in federal court informing the court they are jointly "open to settling the case" if the DOJ was **** bent on killing the merger? And, what about the timing of this notification? The brief was filed the day before Judge Lane had his last POR confirmation hearing. Could this brief contributed to Judge Lane finding AMR's POR "fairly persuasive" in light of the settlement hints?
3. It appears to me that this has become a hard sell negotiation with the threat of litigation that was anticipated by the two companies. I agree with George Hamlin. According to Reuters. "It was surprising that the Justice Department wanted a lengthy period before trial, because its suit implied it had a slam-dunk case, said George Hamlin, president of Hamlin Transportation Consulting, in Fairfax, Virginia." They had the element of surprise. The airlines weren't expecting this. Why wouldn't you want to do it sooner rather than later?"
And, Business Week reported Rich Parker, the newly hired US Airways-American Airlines’ antitrust lawyer, said that the airlines are still interested in having settlement talks with the Justice Department. “We put something on that table before we got sued and the government responded with a complaint not with a counteroffer,” he said.
I find that strange too, but not totally unexpected by AMR and US Airways' leadership teams as Hamlin indicated. According to the Dallas News, "The companies said they expect to call about six witnesses — including executives from their companies and at least one executive at a business that is a potential customer of the American, should the merger go through. It also has hired two antitrust economists who have been working for months on the case, and who will testify before Kollar-Kotelly."
Why would the two companies have hired two economists who have been working for months on the case if Tom Horton, Doug Parker, and Jim Millstein did not anticipate the DOJ's action?
I agree with Hunter Keay, one of the brightest new industry analysts at Wolfe Trahan, that there is about a 75% chance the proposed corporate combination proceeds. As Keay indicated “At the end of the (federal court) hearing, she (the judge) set a trial date for 11/25, marking the first victory for LCC/AMR in what we think will be a series of victories before this merger is consummated.”
In conclusion, I believe pragmatic minds will find a way to get the deal done without judicial intervention. There is simply too much support for the deal and neither party can afford to lose the case.
To read Keay’s bio click here: http://wolferesearch...unter-keay-cfa/
1. Inconsistent Policy - How can the DOJ not oppose the DAL-NWA, UAL-CAL, & Southwest-AirTran deals from proceeding and not the AMR-US Airways deal?
2. Southwest (and JetBlue & Others) - How can the DOJ omit Southwest as a competitor from their complaint? Southwest carry's more domestic passengers than any other airline in our country.
3. Monopoly - The DOJ asserts that the combined AA & US business enterprise would be so strong that they would dictate pricing. Whether we have 5 carriers or 4 carriers anybody who understands the industry knows if a company increases if the fare is not matched the fare increase dies?
These are just a few of the major problems the DOJ will have if the case proceeds to trial. If there is a settlement I believe it is like to include Structural and Behavioral Remedies.
The Structural Remedy will be slots at DCA around the number UAL & CAL divested at Newark.
The Behavioral Remedies could be an agreement to not reduce service in any market currently served by either company, to not increase ancillary fees, or lead an industry fare increase for a period of time. By not reducing service in any market (for a period of time) the New American and the DOJ would appease legislative demands to not pull out of markets like Tallahassee-D.C. and limit fare/fee increases (for a period of time) unless the increase is a reaction to an industry increase initiated by a competitor.
I believe there are a number of key signals leading towards a settlement that include:
1. Why would the DOJ not submit a brief to the bankruptcy court objecting to AMR's POR confirmation if they wanted to kill the deal? Why not have the court do the Justice Department's work instead of preparing a time consuming and expensive trial?
2. Why would the DOJ and the two companies sign a joint brief filed in federal court informing the court they are jointly "open to settling the case" if the DOJ was **** bent on killing the merger? And, what about the timing of this notification? The brief was filed the day before Judge Lane had his last POR confirmation hearing. Could this brief contributed to Judge Lane finding AMR's POR "fairly persuasive" in light of the settlement hints?
3. It appears to me that this has become a hard sell negotiation with the threat of litigation that was anticipated by the two companies. I agree with George Hamlin. According to Reuters. "It was surprising that the Justice Department wanted a lengthy period before trial, because its suit implied it had a slam-dunk case, said George Hamlin, president of Hamlin Transportation Consulting, in Fairfax, Virginia." They had the element of surprise. The airlines weren't expecting this. Why wouldn't you want to do it sooner rather than later?"
And, Business Week reported Rich Parker, the newly hired US Airways-American Airlines’ antitrust lawyer, said that the airlines are still interested in having settlement talks with the Justice Department. “We put something on that table before we got sued and the government responded with a complaint not with a counteroffer,” he said.
I find that strange too, but not totally unexpected by AMR and US Airways' leadership teams as Hamlin indicated. According to the Dallas News, "The companies said they expect to call about six witnesses — including executives from their companies and at least one executive at a business that is a potential customer of the American, should the merger go through. It also has hired two antitrust economists who have been working for months on the case, and who will testify before Kollar-Kotelly."
Why would the two companies have hired two economists who have been working for months on the case if Tom Horton, Doug Parker, and Jim Millstein did not anticipate the DOJ's action?
I agree with Hunter Keay, one of the brightest new industry analysts at Wolfe Trahan, that there is about a 75% chance the proposed corporate combination proceeds. As Keay indicated “At the end of the (federal court) hearing, she (the judge) set a trial date for 11/25, marking the first victory for LCC/AMR in what we think will be a series of victories before this merger is consummated.”
In conclusion, I believe pragmatic minds will find a way to get the deal done without judicial intervention. There is simply too much support for the deal and neither party can afford to lose the case.
To read Keay’s bio click here: http://wolferesearch...unter-keay-cfa/
