PilotAction Merger News for US Airways & American Airlines: August 13, 2013
Justice official: Here’s why we’re fighting the US Airways-American Airlines merger
http://aviationblog....es-merger.html/
Can American and US Airways Stand Alone?
If Merger Plan Doesn't Succeed, the Carriers' Financial Prospects Are Murky
CHICAGO (WSJ.com) - The Justice Department said Tuesday that American Airlines and US Airways Inc. don't need to merge to prosper, and indeed, after years of struggles, the carriers are now posting some of their best financial results ever.
But there are questions on their futures as stand-alone carriers.
After losing more than $8 billion cumulatively since the start of 2008, American parent AMR Corp. posted a $228 million profit in the second quarter, only its third profitable quarter in five years. And on Monday, the company announced record revenue performance in July, taking in almost 15 cents for every seat flown a mile.
US Airways, meanwhile, posted record profit last year, and has continued to blossom financially this year. The airline earned $287 million in the second quarter on fuller planes and lower costs.
"There is no reason to accept the likely anticompetitive consequences of this merger," the Justice Department wrote Tuesday. "Executives of both airlines have repeatedly stated that they don't need this merger to succeed."
But industry analysts and consultants question whether an independent American could ever be an effective long-term competitor against its bigger rivals—United Continental Holdings Inc. and Delta Air Lines Inc.—the world's largest airlines and products of recent mergers approved by the Justice Department.
If the merger is blocked, it "will clear the way for AMR to continue alone as a below average, poorly run carrier managed by essentially the same team that took it to the brink of bankruptcy…in 2003 and then over the edge in 2011," Gimme Credit analyst Vicki Bryan wrote in a research note on Tuesday.
US Airways has a more promising future as an independent carrier, but that it still lacks the network to fully thrive, analysts say. "In five to 10 years, they'll have a more mature network with not much room to grow," said analyst Hunter Keay of Wolfe Research LLC. If the deal collapses, he asked, "does it make sense [for US Airways] to try to reach down and acquire a smaller carrier?"
For more than a year after AMR filed for bankruptcy in November 2011, AMR Chief Executive Tom Horton resisted US Airways overtures for a combination. Instead, he advocated emerging as a stand-alone carrier, growing organically and then considering a merger later.
AMR's creditors ultimately disagreed, saying a merger would be American's best chance for survival. The February merger plan slated US Airways CEO Doug Parker to head the combined carrier, and Mr. Horton was given a temporary post as nonexecutive chairman.
Airline analyst Jamie Baker of J.P. Morgan Chase & Co. wrote in a note on Tuesday that with the merger now in doubt, "we suspect that AMR's advisers will pull the stand-alone plan off the shelf, dust it off, and ask dozens of managers who were soon to be unemployed to remove their resumes from sites like LinkedIn or monster.com in preparation for…a full-court press to convince investors that a stand-alone American is competitively viable over the long term."
At the center of American's stand-alone plan were plans to increase its departures by 20% from its five hubs: New York, Los Angeles, Chicago, Dallas and Miami. That expansion would stray from the industry trend of cutting service, which has helped increase airfares and airline profits, and has largely followed consolidation.
The Justice Department said it partly moved to enjoin the merger because the combination "would likely block American's stand-alone expansion plans, thwarting likely capacity increases."
American's plans to expand worried US Airways at the time, the Justice Department said. In a 2012 internal presentation, US Airways executives said that consolidation and cuts to flying had expanded airline margins, but that American's stand-alone "growth plan has potential to disrupt the new dynamic," according the department's suit.
US Airways confirmed the Justice Department reviewed internal emails as part of its review but said they were taken out of context in the suit.
Keith Wilson, president of the American's pilots union, the Allied Pilots Association, said American can't make up the massive network and revenue disparities it has compared with United and Delta. "To not let us merge like they did with the other carriers does seem like a double standard and it puts us at risk going forward," he said. Without a merger, "we can't get the growth fast enough to be competitive."
In its suit, the Justice Department said that forcing American and US Airways to compete against bigger rivals will be good for fliers. "As the smallest of the legacy airlines, American and US Airways will have greater incentives to grow and compete aggressively through lower ancillary fees, new services and lower fares," the department said.
US Airways-American: Preserving ‘Competition’ by Destroying Jobs
http://finance.yahoo...-210544284.html
The Deal: DOJ Looks to Ground US Air-AMR Merger
JPMorgan & Chase Co. analysts Jamie Baker and Mark Streeter noted that labor unions, Pension Benefit Guaranty Corp., Internal Revenue Service and Treasury all had signed off or publicly expressed support for the deal and warned that the industry's longer-term
earnings prospects will be jeopardized if a standalone AMR must grow its way to competitive network parity with Delta and United.
http://www.thestreet...amr-merger.html
AMR-US Airways Need Merger to Survive, Niedl Says
http://www.bloomberg...html?cmpid=yhoo
Antitrust officials sue to block US Airways-American Airlines merger
AMR and US Airways said they would fight the lawsuit in court rather than seek a compromise that might lead to a settlement
http://www.washingto...5f84_story.html
US Airways-AMR Joint Statement on DOJ Action: August 13, 2013
http://blogs.star-te...t-statement.pdf
US Airways CEO: 'We Will Fight Them'
http://business-news...t-them/12007662
US Airways promises 'vigorous defense' to Justice suit
http://www.usatoday....e-suit/2648197/
Federal government sues to block airline merger
Paul Denis, a Washington antitrust lawyer hired by US Airways, said Tuesday would be the Justice Department's "best day" in the matter. "They got to hold their press conference. Now they've got to try their case in court," he said.
(AMR’s POR) hearing is likely to go ahead, and the judge could approve AMR's turnaround plan on the condition that the Justice Department's opposition is resolved. But AMR probably won't come out of bankruptcy for at least a few more months while it fights the lawsuit, officials at the companies said.
"They didn't have any problem with the Northwest-Delta merger, didn't have any problem with United-Continental. Where did they think it was going to go?" said Robert Mann, an airline consultant who once worked at American.
http://finance.yahoo...-211805819.html
U.S. sues to block AMR-US Airways merger; stocks fall
Bill Baer, head of the Justice Department Antitrust Division said that while he wouldn't rule out a proposed settlement, he thought the evidence pointed to the DOJ blocking the deal.
http://finance.yahoo...-144911711.html
DOJ Blocks US Airways-American Airlines Merger, Now What?
NEW YORK (Seeking Alpha) - On Tuesday morning, the investors of US Airways and American Airlines woke up with a shocking development. After gaining approval of the European Union, the merger was blocked by the Department of Justice. As a reaction, the share price of US Airways plunged by 10% and American Airlines lost about 60% of its market value. What's going to happen now?
First, let me remind you one thing. A block by the U.S. Justice Department is not the same as a court decision even though it can delay things greatly by lengthening the process considerably. The U.S. Justice Department believes that the merger will violate U.S. antitrust law, lead to less competition, and allow for the merged company to have higher pricing power, hurting customers in the long run. At this point, the DOJ is not a decision maker, but it is a plaintiff in the lawsuit (even though it will be a decision maker later on because the merger can't happen without DOJ's approval).
Even though a number of states and local governments spoke out against the merger, no one was expecting the federal government to be involved in this, especially with a lawsuit. Looks like all the analysts, investors and the management of both companies were caught off guard.
The federal government's involvement doesn't guarantee any kind of results though. The courts may or may not side with the plaintiff in this case, so all is not lost yet. The largest 5 airlines currently account for 86% of the air traffic in the US where number 4 happens to be the American Airlines and number 5 happens to be the US Airways. Combining together, the two airlines would form the country's (and possibly the world's) largest airline by volume. In process, this would reduce the number of airline companies that control 86% of the traffic from 5 to 4 companies. This would give the big four tremendous power in setting ticket prices, which is the biggest worry for the Justice Department. This is also one of the strongest cases that can be used against the merger at the court.
It is said that American Airlines and US Airways compete in about 1,000 routes across the country and a possible merger would kill all this competition. As a result, this would hurt consumers who would have to face much higher ticket prices. At least the company wouldn't have to offer as many promotions as it does today due to lack of major competition in many of the routes after the merger. Furthermore, the merged company would control 69% of the take-offs and landings in Reagan National Airport located in the nation's capital.
Apparently, this is another thing that bothers the federal government.
Actually, the block didn't come out of the blue. Last month, there were reportsmentioning a possible lawsuit against the merger where six states would join the DOJ. I'm actually surprised that investors didn't pay attention to these reports last month and they are freaking out right now as if the sky is falling.
So what could happen in court? The court could completely block the merger, which is probably a slim possibility. The court could also ask the companies to give some concessions before the merger, which would result in a delay in the merger but it would still happen. US Airways and American Airlines could make a comeback by asking the DOJ to demonstrate that their merger is different from the mergers that were already approved, such as the merger of Delta Air Lines DAL and Northwest awhile back. After all, why approve one merger while blocking another if they are the not all that different?
Regardless of whether the merger happens or not, the investors of US Airways should not be too worried. In fact, I believe that they over panicked. Last year, I wrote several pieces of US Airways and I was invested in the company. I kept saying that the company was a great investment regardless of the merger, and many people didn't agree with me. The company's share price jumped from the $3s to $10s, then to the $13s and then to the $18s. There are very few companies that can remain to be undervalued after such a strong rally; however, US Airways is one of these companies. The company trades for only 5 times of last year's earnings. US Airways has about $21 per share in cash, whereas, the company's stock price is as low as $17. No matter how you cut it, US Airways is pretty cheap.
In fact, one could even argue that the company would be worth more without the merger. The merger was expected to be valued at $13 billion and the investors of US Airways were scheduled to get 28% of the new company, valuing the company at $3.65 billion which is only 6 times last year's earnings even though that would be above today's share price.
If the merger doesn't happen, investors of American Airlines will be in a more complicated situation than the investors of US Airways. We don't really know what the value of American Airlines would be after emerging from bankruptcy alone, especially with the current management. I think the merger will happen after limited concessions though. As I mentioned above, there has already been mergers similar to this one and they were approved.
Today, I bought some calls of US Airways with a strike price of $17.00 expiring in January 2015. I've been long in this company on and off since last year.
Tie-up Turbulence Unlikely to Derail American-US Airways Marriage
The DOJ suggested it’s open to a negotiated settlement
http://www.foxbusine...rways-marriage/
Reed: DOJ Is Wrong on American-US Airways Merger
It is, of course, too early to say whether the DOJ will win this battle. When the airlines take this case into court, as they have said they will do, the department will have to defend itself against the reality that it enabled two other very similar airline mergers, which have made the airline industry healthier, and now won't allow this one.
http://business-news...merger/12007646
Department of Justice Announcement (A Message from CEO Doug Parker): August 13, 2013
Dear US Airways Team Members,
The DOJ has unfortunately just announced that it intends to try and block our proposed merger with American Airlines. We are extremely disappointed in this action and believe the DOJ is wrong in its assessment. We will fight them. We are confident that by combining American and US Airways we are enhancing competition, providing better service to our customers and improving the industry as a whole. We are mounting a vigorous and strong defense in federal court against the DOJ’s case in order to bring our airlines and talented team members together as the new American Airlines.
Other companies have found themselves in similar circumstances and gone on to successfully close their merger. This is still very new information, so we don’t have all the specifics on timing yet, but we will continue to keep you posted through all the usual channels, including
Arrivals.
I am certain that our proposed merger is the best path forward for both airlines and all of our stakeholders – including you. In fact, expanding our networks was the motivation for bringing our two great airlines together. As the new American we will be a premier global carrier that is positioned to meet our customers’ needs better than any other airline, while also competing more effectively and profitably in the global marketplace. We are 100 percent committed to completing the merger of our two great airlines as soon as possible so that we can start to deliver the benefits of the new American to our stakeholders.
In light of today’s announcement, the companies no longer expect the merger to close during the third quarter of 2013. However, we are hopeful that the litigation will be successfully concluded and we will close the merger before year end.
Thank you for continuing to provide our passengers with the outstanding customer service that they expect from us. We will keep you posted on any developments, but in the meantime, it is business as usual.
Thank you for your ongoing support throughout the merger process. I appreciate your patience and dedication as we work to complete this combination.
Sincerely,
Doug
A Message from Chairman and CEO Tom Horton: August 13, 2013
Dear American Team,
Today we learned the Antitrust Division of the U.S. Department of Justice (DOJ) will oppose our pending merger with US Airways. I wanted to quickly let you know the implications of this decision and to explain what’s next.
As you probably know, this merger in the context of a restructuring, has been a very complex undertaking. It has formed the basis for an unusually successful restructuring, with very positive outcomes for our people, our customers, our owners and the communities we serve. But, it was also subject to a number of approvals including US Airways shareholders, AMR creditors, the Court, and the United States and European Union regulatory authorities. The US Airways and AMR financial stakeholders have voted overwhelmingly in support of the merger and the EU approved the merger. We always expected U.S. regulatory approval to be the final hurdle to clear.
We and our counterparts at US Airways have been working with the DOJ staff for months to ensure that they had an informed view of the merger. We have maintained that the merger is complementary (only 12 overlapping routes), that it provides significant customer benefits and that it enhances competition in the airline industry.
Since the DOJ has formed a contrary view, the matter will now be settled by the courts. The DOJ has filed a lawsuit in federal district court to enjoin the proposed merger. We and US Airways will vigorously defend our position. While we do not yet know how long the court process will run, it will likely take a few months.
In the meantime, American and US Airways will continue to operate as independent companies and competitors. All recent leadership announcements for the new merged American will be on hold until such time as the merger receives final clearance.
Throughout this restructuring, the people of American have stayed focused on caring for our customers day in and day out. And the results speak for themselves. American is again strong, profitable and competitive as evidenced by our record-setting second quarter results. As we work through the court process to clear our merger, let’s keep building the momentum of the new American.
Thanks for all you do.
Tom
ALLIED PILOTS ASSOCIATION LEADER REITERATES COMMITMENT TO AMERICAN AIRLINES-US AIRWAYS MERGER
FORT WORTH, Texas (Aug. 13, 2013) — The president of the Allied Pilots Association (APA), certified collective bargaining agent for the 10,000 pilots of American Airlines, reiterated the union’s commitment to seeing the proposed merger of American Airlines and US Airways through to its fruition.
“Approving the merger is in the best interests of all concerned,” APA President Capt. Keith Wilson said. “We are disappointed that the U.S. Department of Justice has challenged the merger and look forward to the opportunity to highlight the merger’s many benefits.”
The Justice Department, six state attorneys general and the District of Columbia filed a civil antitrust lawsuit today challenging the proposed merger of the two carriers.
“The pilots of American Airlines remain fully committed to merging with US Airways, which will provide for a more secure future for the 100,000 men and women who work for the two airlines,” Wilson said. “As for the notion that the merger would be anti-competitive, the two airlines’ route structures are highly complementary with very little overlap. Combining the two carriers would significantly expand the choice of travel destinations available to consumers.
“Also, the combination of American Airlines and US Airways would create a network carrier comparable to Delta and United in terms of revenue and reach, establishing an important competitive counter balance to those two airlines.
“Consolidation has enabled our industry to stabilize after a round of Chapter 11 bankruptcies that were the result of various exogenous shocks, including terrorist attacks, fuel price spikes and pandemics. It makes no sense for the Justice Department to conclude now that airline industry consolidation is somehow undesirable.”
APA INFORMATION HOTLINE #1: August 13, 2013
This is APA Communications Committee Chairman First Officer Tom Hoban with the APA Information Hotline for Tuesday, Aug. 13.
JUSTICE DEPARTMENT FILES ANTITRUST LAWSUIT CHALLENGING MERGER: The Justice Department, six state attorneys general and the District of Columbia filed a civil antitrust lawsuit today challenging the proposed merger between American Airlines and US Airways. If there is no out-of-court settlement, the case will be tried in a Washington, D.C., court.
Anticipating the possibility of a regulatory objection to the merger, American Airlines' plan of reorganization includes an automatic 30-day stay, which today’s announcement has triggered. As a result, the airline will exit Chapter 11 restructuring no sooner than the fourth quarter of 2013.
The APA leadership is gathering information from our legal and financial advisers and others involved in the restructuring about the potential implications of today’s announcement. We will provide updates as we learn more.
APA remains fully committed to seeing the merger of American Airlines and US Airways through to its fruition for the benefit of the pilots we represent and the communities we serve.
APA INFORMATION HOTLINE #2: August 13, 2013
This is APA Communications Committee Chairman First Officer Tom Hoban with a follow-up APA Information Hotline message for Tuesday, Aug. 13.
In the wake of this morning's announcement of a civil antitrust lawsuit challenging the proposed merger between American Airlines and US Airways, the APA leadership has received a series of briefings from our legal team. Here are highlights of those briefings:
- The confirmation hearing scheduled for Thursday, Aug. 15, in the bankruptcy court in New York will likely go forward. The purpose of this hearing is for U.S. Bankruptcy Judge Sean Lane to consider the plan of reorganization that American Airlines, US Airways, the Unsecured Creditors' Committee (UCC) and all classes of creditors have approved.
- While Judge Lane may choose to approve the plan, the "consummation" of the plan will not occur until the dispute over antitrust issues is resolved.
- The DOJ's lawsuit extends the period that the DOJ and the two airlines may negotiate over a resolution of the antitrust issues, a process that began during the Hart-Scott-Rodino federal premerger notification review, which provides the Federal Trade Commission and DOJ with information about large mergers and acquisitions before they occur.
- The DOJ lawsuit triggers a 30-day stay provision in the agreement reached between the airlines and the DOJ during the Hart-Scott-Rodino process, so the soonest American Airlines could exit bankruptcy is 30 days from today. Our attorneys indicate that there should be pre-trial negotiations between the DOJ and the legal team representing American Airlines and US Airways. If those negotiations do not result in an out-of-court settlement, then a trial before Judge Colleen Kollar-Kotelly, a district court judge in Washington, D.C., will take place.
- We will find out in the next few days when the trial will be scheduled. The trial may occur anytime between the end of September and early December.
- The DOJ did not file suit to block the mergers of Delta–Northwest and United–Continental. For the DOJ to do so for the proposed American Airlines–US Airways merger would seem to be applying a different standard.
- If a plan of reorganization has not been finalized by Dec. 13, American Airlines and US Airways must jointly agree to extend their merger agreement.
- If the DOJ prevails in an effort to block the merger, American Airlines will need to create a new plan of reorganization and submit it to the UCC and others for approval.
- APA will file a "friend of the court" brief as part of preparations for a potential trial. The trial itself would be relatively brief — perhaps one to two weeks.
As we learn more about this developing issue, we will continue providing updates. That's it for now. Thanks for checking this hotline.
APFA Hotline (AA/US Airways Merger Delayed By US DOJ Antitrust Lawsuit): August 13, 2013
This morning, the US Department of Justice along with the attorneys general of six states and the District of Columbia filed an antitrust lawsuit in federal court challenging the proposed merger between US Airways and American Airlines. The lawsuit will have the immediate impact of delaying the merger by at least 30-days and probably a few months, while the suit is litigated.
While the lawsuit is somewhat surprising and certainly disappointing, APFA remains confident that the deal will be approved. American’s creditors, including the three labor unions on the property, recognize the merger’s value to the flying public, the aviation industry, and the employees of both carriers. Industry analysts expected certain challenges to the merger and companies are prepared to address those complaints in court.
With this news, there is still more work to be done. APFA will continue to work to support the merger in the courtroom and elsewhere. Members will be called on in the coming weeks to assist in these efforts so please stay tuned to this hotline.
AmericanAirlines + US Airways
"On Our Way"
Leslie Mayo
APFA National Communications Coordinator
Flight Attendants Blast DOJ Over Merger Lawsuit
Union Says Feds Getting in Way of Competitive Industry, Job Security
FORT WORTH, TEXAS (August 13, 2013) – The Association of Professional Flight Attendants, representing more than 16,000 Flight Attendants at American Airlines, pushed back hard against today’s announcement that the Department of Justice would file suit to block the merger of American and US Airways.
“The fact that Attorney General Holder and the Justice Department have decided to stand in the way of this merger is outrageous and the height of hypocrisy,” said APFA President Laura Glading. “Their actions are only serving to prop up the duopoly they created and they’re doing it at the expense of consumers, the industry, and the employees of American and US Airways.”
Following major mergers of their own, Delta and United have emerged as the dominant carriers in the aviation industry and their vast networks have attracted the high-value business travelers airlines need in order to be profitable. Frequent flyers have left American in droves in favor of carriers with more routes and destinations. The American/US Airways merger will give these travelers a viable third option.
“The reason American is in bankruptcy is because it couldn’t compete in the environment created by the airline mergers of the past few years, which occurred with DOJ’s blessing. Now the game is in the third quarter and they want to change the rules,” Glading said. “It’s ludicrous.”
After decades of uncertainty, including bankruptcies, liquidations, and job losses, the mergers of Delta/Northwest and United/Continental helped move the aviation industry towards a stable and healthy competitive environment. The American/US Airways merger is the final piece of the deregulation puzzle that will provide long-term stability after 30 years of tumult. Without the merger, consumers and workers should expect more uncertainty and more failed airlines.
The DOJ suit claims that American can thrive on its own which is puzzling considering that each and every interested party that has examined this deal has arrived at the opposite conclusion. In reality, the merger has the strong support of airline executives, investors, and workers because everyone knows that neither carrier can compete as a standalone. Any recent success American has enjoyed can be credited to the employees whose wages and benefits were slashed in bankruptcy and to the consumer confidence the merger plan has generated.
For Flight Attendants, the merger will provide job security for thousands of middle class wage earners. The new American is the light at the end of a long tunnel for APFA members that have lost billions of dollars during the industry’s downturn.
“We’re going to continue to fight for this merger and we’re prepared to bring the fight to federal court, the halls of Congress, and the White House, if necessary,” Glading said. “Everyone needs this merger – airline investors, workers, and the flying public especially.”
TWU Air Transport Director Garry Drummond Statement: August 13, 2013
Leaders of the Transport Workers Union and our attorneys believe the merger between US Airways and American Airlines will ultimately be approved.
A new American Airlines composed of US Airways and the current American will provide greater competition with Delta and United as well as international airlines. A combined carrier offers our members both improvements in wages and job security. The new American will certainly offer travelers more options and better service.
We know that both American Airlines and US Airways will vigorously fight the DoJ lawsuit. TWU members will support them in their efforts. We look forward to working with our brothers and sisters at the International Association of Machinists (IAM) and the AFL-CIO to support a merger that benefits consumers and protects good-paying U.S. jobs.
