Who wants a merger with US?
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April 8, 2012 4:03 pm Rivals say AMR must find merger –or perish
By Jeremy Lemer in New York
In recent weeks AMR,the bankrupt parent of American Airlines, has made the case to its creditors, customers and employees that it should remain a standalone carrier, using Chapter 11 to restructure its operations and position itself for future success.
Behind the scenes, however, rivals have been pushing a different theory to many of the same constituents, arguing that AMR must merge with another US carrier as a way to revitalise its network and smooth the reorganisation process.
Advocates present a long list of reasons for a merger. Foremost is the state of AMR’s domestic network,
particularly on the US east coast, which appears to have lost traction with lucrative business customers following large airline deals such as the United-Continental tie-up in 2010.
AMR accepts that it has work to do but sees organic growth at its hubs as the solution. The company plans to increase departures by 20 per cent in five cities and intends to use bigger regional aircraft and shift more flying to third parties to boost revenues and improve efficiency.
Even so, observers worry that AMR may struggle to match its rivals. Unions are opposed to what they see as more outsourcing, and in New York the carrier is hampered by its JFK hub, where capacity constraints make it hard to add domestic flights.
All of that, supporters say, points towards a merger with another US carrier with a large domestic network. Both Delta Air Lines and US Airways would fit the bill and are examining a deal,according to people familiar with the matter.
Any deal would also have potential financial benefits. Previous large-scale airline mergers have produced revenue and cost synergies of up to $1.5bn. That is money that could be used to pay unsecured claims, boost profits and revamp AMR’s ageing fleet.
A tie-up with Delta would give AMR heft in markets such as Los Angeles and Asia where it has a limited presence. But a deal would tear apart one of the three main airline alliances and would likely raise substantial antitrust issues.
By contrast, a US Airways deal would alter, but not fundamentally reshape, the industry landscape. JPMorgan estimates that a tie-up would push AMR’s non-hub US domestic market share from fourth position on the eastern and western regions to second.
Benefits would trickle down to AMR’s influential Oneworld alliance partners too. The grouping lags behind its peers in terms of scale and securing a defection from the rival Star Alliance would add dozens of new destinations in the eastern region.
“US Airways and American, that’s potentially a positive development,” Willie Walsh, head of International Airlines Group,the parent company of British Airways and Iberia, said in February after noting the regulatory hurdles to a potential Delta-AMR deal.
“[However], I’m sure American would want to control that,” he added,“and they’re not very enthusiastic about the sounds that have come from Doug Parker [chief executive] at US Airways”.
Certainly pulling off a transaction will be tough. In public AMR insists that it will only consider consolidation after emerging from Chapter 11. For now the carrier says it is “laser focused” on its own plans to cut costs by $2bn and boost sales by $1bn.
AMR has also moved effectively to box out third parties. In March, the company secured an extended exclusivity period from the bankruptcy court, giving it the right to lead the restructuring until September. AMR can petition to extend that period for up to 18 months.
The same month, the carrier offered a major concession to the US pension insurance agency in what observers described as an effort to appease an influential player that might otherwise have been tempted to ally with outside groups to secure a better deal.
That may be for the best, says Adam Pilarski, with Avitas,the aviation consultancy. The last thing AMR needs, he says, is additional complexity on top of the challenging bankruptcy process.
He adds that US Airways comes with plenty of baggage. The airline is still grappling with the legacy of a previous merger with America West Airlines that left its pilots locked in a protracted internecine court battle.
Indeed, US Airways has its own imperatives for pursuing a deal. While the carrier has worked hard to become profitable, industry consolidation has left it stuck in the middle, “neither fish nor fowl”, says Mr Pilarski, “too big to be nimble like Allegiant Air, too small to be a global competitor.”
Moreover, it is unclear who would run a combined carrier. “US Airways management would have to quit to make a deal with AMR work,” says one industry banker. “The social issues are solvable but I think they are solvable on AMR’s terms.”
Bill Swelbar, with the Massachusetts Institute of Technology’s International Center for Air Transportation, argues that there is something slightly artificial about the drumbeat of stories on consolidation, fostered by well-timed leaks, that imply AMR must merge with US or Delta or perish.
“American has other options,” he says. AMR already plans to extend its code-sharing agreements with Alaska Airlines and JetBlue and either of those carriers, with their strengths on the western and eastern regions respectively, could make a handy merger partner.
Mr Swelbar sees no reason why AMR can’t wait until it completes its restructuring process –and determines the viability of its new network –before looking for a partner. “The speculation is that this has to happen now, and I am not sure it does.”
By Jeremy Lemer in New York
In recent weeks AMR,the bankrupt parent of American Airlines, has made the case to its creditors, customers and employees that it should remain a standalone carrier, using Chapter 11 to restructure its operations and position itself for future success.
Behind the scenes, however, rivals have been pushing a different theory to many of the same constituents, arguing that AMR must merge with another US carrier as a way to revitalise its network and smooth the reorganisation process.
Advocates present a long list of reasons for a merger. Foremost is the state of AMR’s domestic network,
particularly on the US east coast, which appears to have lost traction with lucrative business customers following large airline deals such as the United-Continental tie-up in 2010.
AMR accepts that it has work to do but sees organic growth at its hubs as the solution. The company plans to increase departures by 20 per cent in five cities and intends to use bigger regional aircraft and shift more flying to third parties to boost revenues and improve efficiency.
Even so, observers worry that AMR may struggle to match its rivals. Unions are opposed to what they see as more outsourcing, and in New York the carrier is hampered by its JFK hub, where capacity constraints make it hard to add domestic flights.
All of that, supporters say, points towards a merger with another US carrier with a large domestic network. Both Delta Air Lines and US Airways would fit the bill and are examining a deal,according to people familiar with the matter.
Any deal would also have potential financial benefits. Previous large-scale airline mergers have produced revenue and cost synergies of up to $1.5bn. That is money that could be used to pay unsecured claims, boost profits and revamp AMR’s ageing fleet.
A tie-up with Delta would give AMR heft in markets such as Los Angeles and Asia where it has a limited presence. But a deal would tear apart one of the three main airline alliances and would likely raise substantial antitrust issues.
By contrast, a US Airways deal would alter, but not fundamentally reshape, the industry landscape. JPMorgan estimates that a tie-up would push AMR’s non-hub US domestic market share from fourth position on the eastern and western regions to second.
Benefits would trickle down to AMR’s influential Oneworld alliance partners too. The grouping lags behind its peers in terms of scale and securing a defection from the rival Star Alliance would add dozens of new destinations in the eastern region.
“US Airways and American, that’s potentially a positive development,” Willie Walsh, head of International Airlines Group,the parent company of British Airways and Iberia, said in February after noting the regulatory hurdles to a potential Delta-AMR deal.
“[However], I’m sure American would want to control that,” he added,“and they’re not very enthusiastic about the sounds that have come from Doug Parker [chief executive] at US Airways”.
Certainly pulling off a transaction will be tough. In public AMR insists that it will only consider consolidation after emerging from Chapter 11. For now the carrier says it is “laser focused” on its own plans to cut costs by $2bn and boost sales by $1bn.
AMR has also moved effectively to box out third parties. In March, the company secured an extended exclusivity period from the bankruptcy court, giving it the right to lead the restructuring until September. AMR can petition to extend that period for up to 18 months.
The same month, the carrier offered a major concession to the US pension insurance agency in what observers described as an effort to appease an influential player that might otherwise have been tempted to ally with outside groups to secure a better deal.
That may be for the best, says Adam Pilarski, with Avitas,the aviation consultancy. The last thing AMR needs, he says, is additional complexity on top of the challenging bankruptcy process.
He adds that US Airways comes with plenty of baggage. The airline is still grappling with the legacy of a previous merger with America West Airlines that left its pilots locked in a protracted internecine court battle.
Indeed, US Airways has its own imperatives for pursuing a deal. While the carrier has worked hard to become profitable, industry consolidation has left it stuck in the middle, “neither fish nor fowl”, says Mr Pilarski, “too big to be nimble like Allegiant Air, too small to be a global competitor.”
Moreover, it is unclear who would run a combined carrier. “US Airways management would have to quit to make a deal with AMR work,” says one industry banker. “The social issues are solvable but I think they are solvable on AMR’s terms.”
Bill Swelbar, with the Massachusetts Institute of Technology’s International Center for Air Transportation, argues that there is something slightly artificial about the drumbeat of stories on consolidation, fostered by well-timed leaks, that imply AMR must merge with US or Delta or perish.
“American has other options,” he says. AMR already plans to extend its code-sharing agreements with Alaska Airlines and JetBlue and either of those carriers, with their strengths on the western and eastern regions respectively, could make a handy merger partner.
Mr Swelbar sees no reason why AMR can’t wait until it completes its restructuring process –and determines the viability of its new network –before looking for a partner. “The speculation is that this has to happen now, and I am not sure it does.”
eolesen
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I'm not sure what measure you're going by, UW....
Based on the July schedule, departures from airports categorized as Caribbean:
Code:
Cxr Dptrs Seats
AA 135 17432
B6 98 12840
DL 31 5328
UA 86 3836
US 24 3540
NK 11 1520By seats AA is largest, B6 is second. US is fifth, behind DL & UA.
By departures, AA is still largest, B6 is second, US is still fifth behind UA and DL.
You don't know? If you're going to throw rocks you should at least know who your targets are without seeking the backup of the omniscient, omnipotent and omnipresent hack from Delta. Get real.
I'm just glad I don't have 700UW as my representative and negotiator! Maybe okay as an aircraft cleaner or other role at US Air but it would not be good to have the IAM's (mis)representation imposed on me. I'm flying to DCA later this week on US, maybe I'll have N700UW (I have flown N700UW BOS-PHL before).
Josh
You have no clue of my skill levels and my achievements, if you are going to make it personal then prove what your saying.
I have saved many jobs at US and I even won a $15 million arbitration case for maintenance.
Won many awards for my efforts and accomplishments, you can ask my coworkers who I represented and they will back me up.
Sounds like your jealous, cause your budding in on things you have no idea about, nor even worked in the industry.
Myself and the IAM have never misrepresented anyone, so if your making accusations, then you better back them up.
I spent many nights on the road representing my members, being away from my family and never took anything more than my salary as a worker at US and get reimbursed for my hotel expenses and per diem per the IRS rates.
Your barking up the wrong tree.
I have saved many jobs at US and I even won a $15 million arbitration case for maintenance.
Won many awards for my efforts and accomplishments, you can ask my coworkers who I represented and they will back me up.
Sounds like your jealous, cause your budding in on things you have no idea about, nor even worked in the industry.
Myself and the IAM have never misrepresented anyone, so if your making accusations, then you better back them up.
I spent many nights on the road representing my members, being away from my family and never took anything more than my salary as a worker at US and get reimbursed for my hotel expenses and per diem per the IRS rates.
Your barking up the wrong tree.
luvthe9
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You seem to be a little on the arrogant side, does not bode well for you, most of us hope you don't get screwed like we did, it's kind of ignorant to to bring up our pay, we know it stinks and hope you will not drop to our level. Good luck!!!Bob, at LCC, the A330 Captains make less than our MD80 Captains. Our 777 F/O's make more per hour than every other LCC pilot. This is even true considering the 1113c.
A Republic airlines EMB 145 Captain makes more per hour than an a LCC E190 Captain
Our EAGLE Crj700 Captains make more than LCC E190 Captains.
Somehow, they believe that Parker will pay us more, even up to Delta rates, (and bringing theirs up there too) will generate support for such a merger...
🙄
And after all that Us Airways mechanics are the lowest paid in the industry? Give you credit personally for your efforts but the iam?..Got a lot of bad experience with your "union".. Tell you what if I was on the street and the only job available required me to be a member of the iam I think I would sell pencils on the corner and say no thanks!!
Wrong again. jetBlue is the second largest in the Caribbean.
With all those achievements and awards, I have to ask: Why are you so often incorrect when you attempt to "correct" others' postings on this website?
While US mechanics are not highly paid, they're not the lowest paid; that honor belongs to UA (premerger UA) mechanics, according to AA. PMUA mechanics' top rate is $32.92/hr and AA's top rate is just $33.28/hr. US mechanics enjoy a top rate that's 16 cents higher than AA's rate, or $33.44/hr.
http://www.aanegotiations.com/MechanicsWages.asp
I'm Now of the opinion that....it Wouldn't be IMPOSSIBLE to meld a "going concern" with LCC,...BUT it would take a lot of fine tuning to do it.
LCC does have quality assets. CLT is a high asset for domestic and a certain amount of International.
LCC has a solid grip out of DCA, with AA added in, it becomes a HAMMERLOCK !
AA could restart thier LGA presence, and capture the lost LCC traffic that DL picked up.
A combo of both out of BOS would be very strong. Being large out of PHX doesn't hurt .
The biggest challenge minus the pilots contracts, and other union concern's (for AA) is what to do with PHL Internationally ?
LCC 's fleet of Airbus 320/321/ 330 and 757's is a plus.
Impossible....NO.
"Tricky".......Absolutely !
LCC does have quality assets. CLT is a high asset for domestic and a certain amount of International.
LCC has a solid grip out of DCA, with AA added in, it becomes a HAMMERLOCK !
AA could restart thier LGA presence, and capture the lost LCC traffic that DL picked up.
A combo of both out of BOS would be very strong. Being large out of PHX doesn't hurt .
The biggest challenge minus the pilots contracts, and other union concern's (for AA) is what to do with PHL Internationally ?
LCC 's fleet of Airbus 320/321/ 330 and 757's is a plus.
Impossible....NO.
"Tricky".......Absolutely !
eolesen
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Nah, no need. 700UW's legitimate. He was on the negotiating committee during US's bankruptcy. If you'd been around the forums for more than a few months, you'd know that.
Even better so the UAL guys who are IBT are lowest paid?? With AA and USA following in short order....Yeah thats what I want to pay dues to the ibt, iam or the twu and be at the bottom.....Don't worry like that iam used to say "we will get em next time" LOL.... Wish I had a dime for every time I heard that..
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