Airline stocks down sharply - DOJ reportedly to block AMR/LCC

[autofixer]

Conference call just held with industry was very telling. Short version, US+AA are ready to fight this and believe, at the end of the day, the merger will proceed. It was also pointed out that AA and US CANNOT effectively compete with DL and UA longer term, so that will likely form a major part of the trial. This is no longer in the hands of the DOJ. It's now up to a judge.

Is this judge as unbiased as a bankruptcy judge <sarc> or will they just do the DOJ's bidding?

 

[nycbusdriver]

It was also pointed out that AA and US CANNOT effectively compete with DL and UA longer term, so that will likely form a major part of the trial.

I wonder how Parker's legal minions will spin the fact that LCC is making huge profits right now while competing against DL, UA and SW? We all know part of it is off the backs of the employees, but will the judge say: "Yeah, those folks deserve raise, so let the merger proceed"?

 

[FWAAA]

I wonder how Parker's legal minions will spin the fact that LCC is making huge profits right now while competing against DL, UA and SW? We all know part of it is off the backs of the employees, but will the judge say: "Yeah, those folks deserve raise, so let the merger proceed"?

Exactly. Not only is LCC making healthy profits, but even in bankruptcy, AMR has reported first half profits (excluding special items and reorg expenses) of $365 million, which are substantially more than UA's first half profits of about $190 million (again, excluding special items and reorg/merger expenses). AA will probably make at least that much in the third quarter as AA's lower labor costs are fully implemented and the third quarter is usually the big one for revenue.

The "failing company doctrine" only applies when one of the companies is actually failing - not when confirmed liars like Doug Parker claim that without the merger, AA or US will eventually falter and fail. I've said it before - your CEO is only about half as smart as his fanclub leaders claim.

 

[700UW]

18 months of profits doesnt out weigh the losses over the years.

 

[nycbusdriver]

18 months of profits doesnt out weigh the losses over the years.

That's a good point. Crandall alluded to that in his Fox News interview.

Delta and United aren't fully tweaked yet, either. Once that happens, they will be in a much better position to pound US, AA and every other carrier (except, of course, SW.)

 

[USFlyer]

We need to take the theatrics out of the equation. Bottom line, the merger can only be blocked if the merger of these two entities, and only these two entities, will reduce competition to an unacceptable level. The merger cannot be blocked if two profitable companies become more profitable. The merger cannot be blocked if the US Government wants to "remake" the industry. The merger cannot be blocked because the US Government has decided it doesn't like "fees". The merger cannot be blocked if the merger will eliminate service at some cities. The merger cannot be blocked if a given connecting route goes from five competitors to four competitors (or 4 to 3). Those are not valid arguments in Court, though they make for a nice presser, as the DOJ got yesterday. All that can be considered is the competitive impact of combining these two companies and whether such a combination would reduce competition to an unacceptable level. None of the facts bear this out. The theatrics do, but not the facts.

 

[USFlyer]

18 months of profits doesnt out weigh the losses over the years.

It doesn't matter. Just because two companies are profitable doesn't mean the merger cannot proceed. It's an irrelevant argument, but, again, makes for nice press coverage. Many profitable companies choose to merge to increase revenue, increase margins and decrease costs -- that's the whole point of merging! I've personally been involved with three mergers -- one in 2004, one in 2005 and one in 2010. All of them combined two very profitable companies to form one, more profitable company.

 

[USFlyer]

I wonder how Parker's legal minions will spin the fact that LCC is making huge profits right now while competing against DL, UA and SW? We all know part of it is off the backs of the employees, but will the judge say: "Yeah, those folks deserve raise, so let the merger proceed"?

Also doesn't matter. The fact US is able to compete now against those guys is irrelevant. All that matters is whether a combined AA and US will prevent such competition from taking place going forward. I find it a very weak argument to say that a US+AA that is essentially the same size as UA, DL and WN will reduce competition. A stronger AA makes it much harder for UA, DL and WN to increase prices as there is a fourth strong and equal sized competitor in the mix. US is not a leader in pricing -- it follows. AA is very much in a similar position these days given its smaller network when compared to UA, DL and WN.

 

[FWAAA]

18 months of profits doesnt out weigh the losses over the years.

I don't think the DoJ is going to sit idly by while Parker and Horton argue that AA is a failing company because it lost billions over more than 10 years when the recent history is that AA finally filed Ch 11 to bring its labor costs down to UA and DL levels and since it did, it's showing profits.

Despite some huge losses and some huge profits since 2005, US isn't a failing company either.

On top of that, Parker and Horton have said repeatedly over the past 18 months that both airlines will thrive without a merger. The DoJ gave us some excerpts in the complaint.

That's a good point. Crandall alluded to that in his Fox News interview.

Delta and United aren't fully tweaked yet, either. Once that happens, they will be in a much better position to pound US, AA and every other carrier (except, of course, SW.)

Unfortunately for Parker, the failing company doctrine requires that one (or both) of the companies be failing NOW, not at some speculative point in the future. AA's purchase of TWA's assets met that test. TWA was failing in January, 2001.

 

[USFlyer]

Unfortunately for Parker, the failing company doctrine requires that one (or both) of the companies be failing NOW, not at some speculative point in the future. AA's purchase of TWA's assets met that test. TWA was failing in January, 2001.

Where has the failing company doctrine been cited by anyone? This is the first I'm hearing that this was a basis for the merger. It wasn't, from everything I've read.

 

[zethya]

Exactly. Not only is LCC making healthy profits, but even in bankruptcy, AMR has reported first half profits (excluding special items and reorg expenses) of $365 million, which are substantially more than UA's first half profits of about $190 million (again, excluding special items and reorg/merger expenses). AA will probably make at least that much in the third quarter as AA's lower labor costs are fully implemented and the third quarter is usually the big one for revenue.

The "failing company doctrine" only applies when one of the companies is actually failing - not when confirmed liars like Doug Parker claim that without the merger, AA or US will eventually falter and fail. I've said it before - your CEO is only about half as smart as his fanclub leaders claim.

It's very interesting to observe how you have switched so quickly from Bash US/Parker to Support US/Parker and the Merger and now right back to Bash US/Parker. In my view, it significantly reduces your credibility. Can't wait for your reversal if the merger is approved.
I'd like to know how a standalone AA is going to negotiate to a profit based labor settlement after Parker's commitments. IMO, this alone reduces the chances of AA surviving on their own. I'd bet Horton and the BOD are well aware of this risk and it's the basis for them supporting the impending law suit. I wouldn't bet the house on your prediction the merger won't go thru. After all, you posted here and elsewhere, that AA would NEVER agree to merge with US in the first place.

 

[FWAAA]

Where has the failing company doctrine been cited by anyone? This is the first I'm hearing that this was a basis for the merger. It wasn't, from everything I've read.

The allegations in the complaint that both US and AA are profitable plus the quotes of Parker and Horton claiming that neither airline needs the merger to survive were presented by the DoJ precisely because it expects US to raise the failing company doctrine.

 

[WorldTraveler]

It doesn't matter. Just because two companies are profitable doesn't mean the merger cannot proceed. It's an irrelevant argument, but, again, makes for nice press coverage. Many profitable companies choose to merge to increase revenue, increase margins and decrease costs -- that's the whole point of merging! I've personally been involved with three mergers -- one in 2004, one in 2005 and one in 2010. All of them combined two very profitable companies to form one, more profitable company.

that is correct and the lawsuit will be about the law, not economics of the industry, esp. forwarding looking predictions of how a company might do as justification for a merger today. FWAAA is correct that mergers are not predicated on trying to determine some sort of future outcome for the industry, including whether AA or US can ever compete against DL and UA.

There is also no legal basis for arguing that the industry should have 3 network carriers or similar size plus WN. None.

The DOJ's case must be based on consolidation as it would exist today as a result of this merger and most specifically the uncompetitive nature of this merger...

and will due respect the verbal and written evidence the DOJ trotted out regarding expectations of higher fares and attempts to eliminate consumer-friendly competitive actions makes it VERY hard for AA and US to overcome whatever economic argument they might have been able to use. The fact that US' existence for much of its time since BK has been based on undercutting other carriers is key evidence that they have managed to succeed so far (and profitably so) yet walking away from that business strategy thru a merger would be damaging to consumers. IOW, perhaps US should have thought thru the long-term implications of being a bottom feeder in the airline industry and the role they would be locked into by doing so.

I'm not sure people here really grasp how damaging it is for a government official to hear that the merger will result in fewer choices for consumers and higher prices which is EXACTLY what a number of the internal documents AA/US produced and which were uncovered by the DOJ said.

As much as AA and US want to try to shift the argument to economic matters including the "unfairness" of DL, UA, and WN getting a merger but AA/US being denied, there was clear evidence that was presented regarding the uncompetitive effects of the AA/US merger which simply were not presented regarding other mergers.

OTOH the DOJ needs to drop its argument about "we've looked at the industry and decided we don't like what we see after consolidation" because that is problematic. At the same time, there never was any requirement on the DOJ that they had to approve subsequent mergers if they approved the first three. There is absolutely no legal basis for saying that AA/US should be approved because the others did. Having the DOJ say they don't like what they see now is not an acceptable reason; the simple fact that the current merger proposal is deemed to be uncompetitive is sufficient.

 

[nevergiveup]

The allegations in the complaint that both US and AA are profitable plus the quotes of Parker and Horton claiming that neither airline needs the merger to survive were presented by the DoJ precisely because it expects US to raise the failing company doctrine.

Have profitable companies is other industries been allowed to merge?

 

[USFlyer]

The allegations in the complaint that both US and AA are profitable plus the quotes of Parker and Horton claiming that neither airline needs the merger to survive were presented by the DoJ precisely because it expects US to raise the failing company doctrine.

I disagree. DOJ used this in the complaint because it really has nothing else to use. The complaint is weak.