AA and US merger?

The first 230 deliveries have been fully financed - that's all deliveries thru 2017. The other 230 (neos and Max) are not yet financed, but there are almost six years to arrange that financing.



I disagree. If fuel savings and maintenance holidays can pay for these new planes, there will be no meaningful opposition to their acquisition, especially if fuel stays high throughout the AA bankruptcy. It's not quite the same as a new fuel efficient car, as most of us don't drive our cars as much as most airplanes fly. Almost nobody drives their car enough so that fuel savings makes most of the payments.



Creditors probably like the idea of getting both: labor cost reductions (including pay rates, productivity improvements and pension changes) plus fuel savings thru new fuel efficient planes. If I were UA or DL, I'd be a little concerned that AA might be successful in slashing labor costs plus lowering fuel costs by accepting 460+ new narrowbodies plus 42 789s (plus the 58 options). If everything falls into place for AA (admitedly, not a certainty by any stretch), AA might be a formidable competitor in the future.


FWAAA,
Americans have become accustomed to “let’s buy the newest model just because it can do a lot the old couldn’t do” for years – and that is why the US is in the financial shape it is in.
AA’s mindset of “let’s replace 75% of our fleet over the next 5 years” doesn’t make economic sense and won’t fly with the creditors who do in fact have a great deal of control over AA’s future. Here’s why
1. Do you realize that even if you give AA a 50% discount on every airplane it has on order, the cost of its order book exceeds $25B over 5-7 years? In contrast, even if UA/CO orders a couple hundred new narrowbodies, the value of their order book will be about half of what AA has. ON the other end, DL has about $5B worth of aircraft on order, none of which are international aircraft (again 5-7 year perspective). WN has a couple billion dollars at best. AMR already has one of the highest debt ratios in the industry and it consists largely of aircraft in service today and yet AA thinks they can throw twice as much debt on over the next five years, leaving them with debt levels that will be three times what its competitors have – and it can create a viable business level.
2. Most of AA’s current aircraft assets have value and are also used to secure debt. In order to take on all of the aircraft AA wants to take on, it has to get rid of assets which have value and which are also securing debt which AA accrued funding its operations over the past several years. I’m quite interested in seeing how AA can convince their creditors that AA will be better off throwing away existing assets in order to acquire new assets.
3. Of course there are operational cost advantages from a younger fleet but no airline that has survived has ever obtained significant numbers of new aircraft with the intention of replacing viable existing aircraft. AA might want to get rid of its 757 and M80 fleet well ahead of its competitors – perhaps to compensate for not getting reducing its M80 fleet sooner – but other carriers can make money using aircraft older than 1st generation – and creditors will look at what competitors and AA can do with the same assets. Many of the costs that AA has because of having older aircraft in its fleet are related to its labor contracts. Needless to say, AA’s maintenance costs for older aircraft go down a whole lot if it starts sending them overseas for overhauls. Suddenly the advantage of buying new aircraft isn’t near as large – yet the financial risks for taking on that debt remain just as high.
4. New assets cost money – lots of it… not just in terms of paying for the actual asset but also for the interest on borrowing that kind of money. Interest on $25B even spread over the usual 20 year life of aircraft is a whole lot of money.
5. Then you have metrics like return on investment and return on invested capital which measure how well a company does in using the assets it has. Given AA’s much higher indebtedness level, it would have to obtain much higher levels of revenue in order to provide similar levels of debt coverage. Investors and lenders look at these metrics as indications of how well AA could potentially service even more debt. If you can’t generate acceptable levels of asset use, the chances of being able to obtain more debt and the associated assets are slim.
6. Finally, being mortgaged to the hilt is a dangerous position to be when strategic opportunities arise. If key industry assets become available that AA could really use to round out its network, AA would find it much harder to bid for those assets against a competitor with lower debt levels. For example, what would AA’s future look like if DL decides to bid for Alaska and AA has no financial ability to respond? The same scene could be repeated many times over the next few years as consolidation begins to cross international boundaries… and it could put AA or any other highly leveraged company – at a huge strategic disadvantage.

AA does have 18 months to get out of BK w/o things getting really messy. The first new aircraft should start to arrive about the time AA emerges. AA’s creditors do have a great deal to say about the plan AA develops to run the business for the future beyond BK. Once AA emerges, it can make changes but if the creditors do not believe it is in their best interests for AA to park a lot of viable, working assets in order to take on new aircraft at high debt levels which would create risk to AMR’s creditors long term, they could indeed reduce and slow down the size of AA’s fleet replacement plans.

Yes, DL and UA and WN (who really is now the 4th man in the 4 way nationwide airline battle) could all be greatly harmed if AA becomes a very efficient low cost carrier.... but the simple fact is that AA cannot get out the costs on top of having to reduce capacity and reduce the revenue gap which already exists between AA and the other 3 without labor costs being reduced to levels that are so low that the employees just decide to shut the company down - which is exactly what has happened to companies in the past.... when your labor is paid so low in order to compensate for other parts of the business plan that are vastly out of line with the rest of the industry, there is no incentive to make the company work.
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For the benefit of AA's future and AA employees' willingness to work to turn the company around, AA's grandiose fleet replacement plans will have to be slowed down. The creditors and AA's competitors know that.
 
Our fave DL spokeman's phony compassion for AA employees is getting old. Beware, it has your interests in mind, NOT!

What WT calls "facts" and "truth", I call my opinions, Here are a couple:

DL wants AA to come out of Chapter 11 as weak as possible, alone, and smaller.
DL wants US to go away, just give it up, die, wither on the vine, pfft.
DL certainly does not want AA to have a larger eastern US presence, ergo, no US/AA merger!

Whether a merger is good or bad for AA is open for discussion, but I think it's clear that it would not be
Delta's hoped for outcome.
 
yes, and I am glad we are on the same page. I am enjoying your posts as they focus on the business issues at hand!

I am on a different page.


I would love to see US Airways (aka AWA) just go out of business. That's my personal feeling against the company.

But something tells me that, whether seen as a disaster or not, AA is prepping itself to merge with US.
 
I can tell you that Parker and US will start up their propaganda machine in full force no longer than March 1 telling us that AA can't successfully restructure and US is the only option.

Na ... your scenario is way behind the process ..... more than likely Parker and Horton have already started hitting the golf course together discussing their post-merger plan going forward. This stuff doesn't unfold ..... it's orchestrated.

This merger would be more about getting rid of US Airways than getting rid of American. Some of your negative drivel about US has a grain of truth in it. Delta and American did everything they could to wipe US Airways off the map through "natural processes" 10-15 years ago. But the government has been manipulating the industry and not allowing natural market forces to reduce capacity, because congress wanted pressure applied on labor. In other words US and several other airline should have gone out of business or been gobbled up years ago .... BUT if they had, deregulation would have been a failure .... and you would be paying 25% more for your tickets today, and workers in this industry would still hold middle class status in America. AA, DL, & UA would have never visited BK court if the government had stayed out of the way.

Now the government is starting to realize that it over shot the mark. The consolation you are seeing should have started many years ago. It's all about downsizing the industry in a smooth slightly organized fashion.
 
AA is not going to go through BK only yo come out and spending time and money putting usairways in to it or folding out of existence. If that is truly what the industry needs UAL and DAl need to step up to the plate. The AC orders speak volumes to AA's intentions and future plans.
 
Na ... your scenario is way behind the process ..... more than likely Parker and Horton have already started hitting the golf course together discussing their post-merger plan going forward. This stuff doesn't unfold ..... it's orchestrated.

This merger would be more about getting rid of US Airways than getting rid of American. Some of your negative drivel about US has a grain of truth in it. Delta and American did everything they could to wipe US Airways off the map through "natural processes" 10-15 years ago. But the government has been manipulating the industry and not allowing natural market forces to reduce capacity, because congress wanted pressure applied on labor. In other words US and several other airline should have gone out of business or been gobbled up years ago .... BUT if they had, deregulation would have been a failure .... and you would be paying 25% more for your tickets today, and workers in this industry would still hold middle class status in America. AA, DL, & UA would have never visited BK court if the government had stayed out of the way.

Now the government is starting to realize that it over shot the mark. The consolation you are seeing should have started many years ago. It's all about downsizing the industry in a smooth slightly organized fashion.

Oliver Stone would love this theory. And to think that deregulation was possibly conceived on the grassy knoll in Dealy Plaza. Maybe Horton and Parker are sequestered on the 6th floor of the Texas School Book Depository plotting a merger. Stay tuned.
 
Our fave DL spokeman's phony compassion for AA employees is getting old. Beware, it has your interests in mind, NOT!

What WT calls "facts" and "truth", I call my opinions, Here are a couple:

DL wants AA to come out of Chapter 11 as weak as possible, alone, and smaller.
DL wants US to go away, just give it up, die, wither on the vine, pfft.
DL certainly does not want AA to have a larger eastern US presence, ergo, no US/AA merger!

Whether a merger is good or bad for AA is open for discussion, but I think it's clear that it would not be
Delta's hoped for outcome.


Spot on! He also doesn't want Delta to become the 3rd largest carrier if the merger happens.

WT is only interested in Delta's best interest not AA. According to him a merger with US has nothing to offer which I say is hogwash as even if it was true it certainly wouldn't take away anything either only add. The world is changing and airline consolidation is the name of the game.
 
U offers nothing to AA. Does AA need another hodge pod of fleet types and engines. A hub airport next to JFK, CLT and PHX offer next to nothing. And who want to take the warring employees? Let U keep their drama and dreams of a merger with just about anyone.
 
The theory about why US employees are so low paid is nothing but another excuse for why US, despite having engaged in a number of mergers, still has a well-published (and Doctor Dougie doesn't mind telling us) revenue shortfall relative to the industry. He is, of course, right on that point and this little factoid shows why.
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At LGA, currently, DL has about 25% of the slots but gets 33% of the revenue. At DCA, in contrast, US has about 1/3 of the slots but gets 25% of the revenue. Does anyone see the problem w/ this?
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Yes, Mikey, US offers nothing to AA and the proposed takeover is nothing more than an attempt to finally correct years and years of underperformance at US which have left US employees as the lowest paid in the industry - but yet they want to grab more industry assets so they can destroy the value in them and bring wages down to US levels. (perhaps under the theory that misery loves company).
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The notion that a combined AA/US would out outrank DL misses the fact that the two carriers are about the same size (slightly smaller) than DL now AND AA will cut revenue as it shrinks in BK - about 6% revenue cut on 10% less capacity. Further, all of the overlap and "synergies" that US thinks will happen only remove MORE capacity.
Oh, and DL is getting another 25% of the slots at LGA compared to a much smaller increase for US at DCA. DL's revenue growth will far outstrip US' as a result of the slot deal.
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WT calls them the way he sees them and like Mikey, I recognize there is no value added in an AA/US merger/takeover/asset raid. that fact has nothing to do with Delta or what they have done or not.....
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on the conspiracy theory line of reasoning, perhaps we should ask if DL and UA execs have plotted to carve up and do away with US. I mean after all UA seems very quiet about this whole slot swap... UA/CO is pulling some capacity out of EWR in favor of IAD... maybe DL and UA agreed that DL will take over NYC and UA can have DCA/IAD and CLT too.
sounds reasonable.
Oh, and DL and UA employees will make more than US employees no matter how you slice it.
 
The theory about why US employees are so low paid is nothing but another excuse for why US, despite having engaged in a number of mergers, still has a well-published (and Doctor Dougie doesn't mind telling us) revenue shortfall relative to the industry. He is, of course, right on that point and this little factoid shows why.
.
At LGA, currently, DL has about 25% of the slots but gets 33% of the revenue. At DCA, in contrast, US has about 1/3 of the slots but gets 25% of the revenue. Does anyone see the problem w/ this?
.
Yes, Mikey, US offers nothing to AA and the proposed takeover is nothing more than an attempt to finally correct years and years of underperformance at US which have left US employees as the lowest paid in the industry - but yet they want to grab more industry assets so they can destroy the value in them and bring wages down to US levels. (perhaps under the theory that misery loves company).
.
The notion that a combined AA/US would out outrank DL misses the fact that the two carriers are about the same size (slightly smaller) than DL now AND AA will cut revenue as it shrinks in BK - about 6% revenue cut on 10% less capacity. Further, all of the overlap and "synergies" that US thinks will happen only remove MORE capacity.
Oh, and DL is getting another 25% of the slots at LGA compared to a much smaller increase for US at DCA. DL's revenue growth will far outstrip US' as a result of the slot deal.
.
WT calls them the way he sees them and like Mikey, I recognize there is no value added in an AA/US merger/takeover/asset raid. that fact has nothing to do with Delta or what they have done or not.....
.
on the conspiracy theory line of reasoning, perhaps we should ask if DL and UA execs have plotted to carve up and do away with US. I mean after all UA seems very quiet about this whole slot swap... UA/CO is pulling some capacity out of EWR in favor of IAD... maybe DL and UA agreed that DL will take over NYC and UA can have DCA/IAD and CLT too.
sounds reasonable.
Oh, and DL and UA employees will make more than US employees no matter how you slice it.
Your such a tool.. <_<
 
The theory about why US employees are so low paid is nothing but another excuse for why US, despite having engaged in a number of mergers, still has a well-published (and Doctor Dougie doesn't mind telling us) revenue shortfall relative to the industry. He is, of course, right on that point and this little factoid shows why.
.
At LGA, currently, DL has about 25% of the slots but gets 33% of the revenue. At DCA, in contrast, US has about 1/3 of the slots but gets 25% of the revenue. Does anyone see the problem w/ this?
.
Yes, Mikey, US offers nothing to AA and the proposed takeover is nothing more than an attempt to finally correct years and years of underperformance at US which have left US employees as the lowest paid in the industry - but yet they want to grab more industry assets so they can destroy the value in them and bring wages down to US levels. (perhaps under the theory that misery loves company).
.
The notion that a combined AA/US would out outrank DL misses the fact that the two carriers are about the same size (slightly smaller) than DL now AND AA will cut revenue as it shrinks in BK - about 6% revenue cut on 10% less capacity. Further, all of the overlap and "synergies" that US thinks will happen only remove MORE capacity.
Oh, and DL is getting another 25% of the slots at LGA compared to a much smaller increase for US at DCA. DL's revenue growth will far outstrip US' as a result of the slot deal.
.
WT calls them the way he sees them and like Mikey, I recognize there is no value added in an AA/US merger/takeover/asset raid. that fact has nothing to do with Delta or what they have done or not.....
.
on the conspiracy theory line of reasoning, perhaps we should ask if DL and UA execs have plotted to carve up and do away with US. I mean after all UA seems very quiet about this whole slot swap... UA/CO is pulling some capacity out of EWR in favor of IAD... maybe DL and UA agreed that DL will take over NYC and UA can have DCA/IAD and CLT too.
sounds reasonable.
Oh, and DL and UA employees will make more than US employees no matter how you slice it.

LOL Hey WT you're in the predicting the future business. Maybe you can do better than that loser preacher and predict when the world is gonna end. Come on WT "call it the way you see it." Good lord.
 
There is a WT/Cliff Claven on every message board it seems.

If only everyone here could just see the genius in all of the posts.

So frustrating!
 
if it serves to shut down yet one more thread about how US can do wonders for AA, I am more than willing to throw my 2 cents worth in.

The only prediction relevant to this discussion is that US will fail at any attempts at remaking itself into one of the megacarriers.
 

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