D
D
Deleted member 17588
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At this point I'm all for a merger. Any merger. I think it's our only chance for survival. The executives of American Airlines have proven themselves as entirely inept, reckless and irresponsible, and they have continued this same behavior into the bankruptcy process as well. If there is no merger, I fear there may no longer be an American Airlines by the end of this year to emerge from bankruptcy as a stand alone airline. And if that's the case, the blame can be placed entirely on the laps of our senior management and not the unions or the workforce. We've done our part for the past nine years.
I wouldn't be so dramatic and say that AA won't be here at the end of the year but yes A merger might be the best option for AA. But try telling that to the folks at AA. They just put their hands over their ears and say "La,La,La,La" like little 3 yr olds. because there is no way in hell that big ole AA will be bought out by little ole USAir... Whatever .
No its more of a blood curdling scream praying not to be part of the train wreck called usairways.
You can dream and speculate all you like. But a Bloomberg quote from Horton about mergers and the future of AA, speaks volumes over the armchair CEO and UCT dreamers here.
what Horton thinks or usairs chances HERE
You can dream and speculate all you like. But a Bloomberg quote from Horton about mergers and the future of AA, speaks volumes over the armchair CEO and UCT dreamers here.
what Horton thinks or usairs chances HERE
eolesen
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Could also be HP -- rumors abound this week that AA is pulling the plug on the "delayed so much that even Kate Hanni is speechless" Jetstream project....
If AA merged with USAir or United, that would preserve them as a HP customer. If they went to DL, Travelport would presumably get the business.
WorldTraveler
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I wouldn’t be so quick to write off that either the unions or the PBGC aren’t behind this potential interest in considering alternate plans –and it is probably likely the PBGC is attempting to convince the other creditors, including the unions, that a freeze instead of a termination, will result in greater claims for the other creditors (which it will). There could be other creditors including AMR’s aircraft lessors and debt holders most of whom have to take significant cuts in order to allow AA’s plan to replace 2/3 of its fleet within the next five years or so to work.
I said it before – and I’ll repeat it again – that if the size of what AA seeks is too high, the creditors will look for other alternatives – and if the only way AA can succeed at its restructuring is to impose cuts that are steeper than what those creditors would receive under other plans, they will be very tempted to look elsewhere – including labor.
While labor wants to keep its membership fees coming for years to come, labor leaders are also losing something tangible now in AA’s restructuring – and they, like their membership, may believe their personal best interest will come from other plans instead of AA’s. The PBGC particularly will look at who will be able to provide the greatest return – and they are much less interested in trying to balance competing network interests or the long-term future of labor unions; their primary motivation will be financial – which will be the driving factor in AA’s reorganization overall.
Before I go any further, let me say that I still believe AA’s best most likely outcome is to emerge independent and successful. But the competitive situation is a lot different than it was during other airline BKs and it is precisely because AA still controls a number of key industry assets and revenue streams that they will remain disproportionately value relative to their own value…. AMR is about a $20B/year company in terms of revenue but even restructured will probably have a market cap between $5-8B; given that AA should be successful as a restructured company, the economics very much say that AA could be more valuable to someone else than as a standalone company.
Because of the news that creditors are apparently beginning to think outside of AMR’s plan, it is worth looking at a few scenarios.
First reality is that a combination with any other non-US airline entity will not likely change the economics of AA’s restructuring. TPG or any other investor could bring money and maybe some airline mgmt experience – but that is not to say that another party, including another airline, cannot bring or arrange the same financing and at least as good as if not better airline mgmt experience. BA or other oneworld partners could throw money into the ring – but AA’s business plan is not basically changed because AA presumably cannot increase its ties with those partners any more than they already are.
And that means that the field of investors/partners comes down to other US airlines. If the creditors are looking for the best financial deal – then the pool would include AS, B6, DL, UA, and WN – and probably not much else – certainly not US. Although US can argue that it has an inferior network, it still is not growing its revenue as much as other carriers and it is not being its peers in other metrics. It would be very hard to argue that US could be the best financial solution for the creditors. AS presents the least antitrust issues – but it isn’t at all clear they could pull of an acquisition of AMR and if they did that they would want to take on such a radically different business model than what AS does well at right now. AA might be positioned to buy AS down the road (assuming someone else doesn’t beat them to it) but it is highly unlikely that AS would want to buy AA now.
It is highly unlikely that an IT company like HP who can't even decided whether they want to build personal computers or not will jump into the fray as a potential acquirer.
Suppliers clearly might prefer one restructuring proposal over another but they are not going to be influential in the final decision. The same can be said about airline partners - there simply is far more financially at stake with AA's own creditors than with any partner or supplier.
WN agreed that it will not fly from DFW – which removes AA’s biggest revenue source from the mix. They could argue the point but it is doubtful they would win against someone else who doesn’t have that restriction – and it still doesn’t change the fact that like AS, WN does its own business model well, not the kind of business model AA operates.
Among the other 3 network carriers , UA not only has the greatest amount of total overlap but they would also gain the least by an AA acquisition. We’ve discussed US’ relative weakness w/ respect to its ability to demonstrate financial strength – and even a combined AA/US does not provide any advantage that would make it easier for AA/US to compete against DL or UA across a global network.
So, if you accept that not only do DL and UA have a strong track record of increasing stockholder value and that no combination of AA with anyone else except DL or UA will provide AA with the necessary size to compete, then you have to weigh the antitrust considerations of an AA-DL vs an AA-UA merger.
But before you do that, the reality might have sunk in to the creditors that AA’s business plan might require that AA have a long-term cost advantage because its size like US means that it cannot compete long-term with DL and UA who have larger networks. While joint ventures have been hailed as virtual revenue mergers, there is no evidence that they provide revenue at the same levels as what is obtained from a network that is controlled by a single entity.
Although some analysts argue that AA and DL have too much overlap to be considered as merger partners by the DOT and DOJ, the reality is that the two carriers overlap to any significant degree only in NYC. Since the size of slot portfolios at restricted access airports is a factor the DOT and DOJ have used to measure competitiveness, it is worth noting that at LGA, DL controls 47% of the slots based on summer 2012 schedules. At JFK DL, the largest slot holder, controls 31% of total slots or 37% of slots held by US carriers since approx. 20% of JFK’s slots are held by foreign airlines. Yet at DCA US controls 54% of slots and at EWR, CO/UA controls 75% of the slots. Even if you look at slot control for NYC as a whole, UA/CO controls a higher percentage of slots in the NYC region.
So, if DL was limited to 50% of the slots at LGA and JFK, it would still have a lower percentage of slots at the 3 NYC airports than CO/UA and a lower percentage of slots than US at DCA (which likely could not combine w/ any carrier who holds DCA slots since US already holds more than 50% w/o divestitures) – then DL could acquire approx 3% more slots at LGA – or 18 more daily flights (probably enough to bring the combined level of DL ops in any LGA-AA hub market up to AA levels of flights even though DL now (or soon will) have flights in every AA LGA market except YYZ although at lower levels than AA). In addition, without exceeding 50% of the US carrier slots at JFK, DL could still increase its JFK presence by about 60 flights/day. Thus, an AA –DL combination could pass DOT/DOJ approval if DL divested approx. 80% of AA’s current LGA slot holdings and about 2/3 of AA’s JFK holdings – and that still supposes that 50% is a hard number which DL could not exceed. If B6 and WN were each allowed to acquire 1/3 each of the divested slots at LGA and JFK, it would create a low fare carrier presence at LGA of more than 20% easily doubling WN and B6’s current holdings and allowing B6 to either be on par with DL at JFK or introduce WN or other low fare carriers at JFK.
There isn’t anywhere else on the combined AA/DL network where DL’s size relative to its competitors is problematic. Even if the concern is over the total size of DL, it is very possible that a new DL would not exceed 33-35% total US market share which is well within what antitrust law has permitted in other industries.
What is clear is that there is no basis for arguing that the US needs 3 network carriers plus one nationwide low fare carrier (WN) plus a few niche airlines like AS, B6, F9, VX, etc.
It is also possible – if not likely that a DL-AA combination would push UA to acquire US which would help address UA’s network deficiencies in the SE US with potentially some divestitures in WAS. A combined AA-DL and UA-US do not look excessively large or out of size with each other compared with WN-FL on the domestic system who would likely pick up more slots on the east coast.
Internationally, no other country has more than 2 comparable international carriers as the US currently does. Even if you look at the EU as one country, there still are pretty significant geographic differences between the strength areas of AF/KL/AZ, BA/IB, and the LH group. It could very much be argued (and I would agree) that if the US industry consolidates to the point that it might if DL and UA become the primary two US int’l carriers, then antitrust immunity and joint ventures are not necessary or appropriate. They may have helped consolidate the industry – but aren’t necessary if the industry worldwide consolidates into less than a dozen powerful global carriers.
Once again, my position remains that AA’s most likely outcome is to emerge independently. But the size of the cuts they must make – and the fact that those cuts are coming from the very people who determine AA’s future – might well mean that a better alternative and better recovery might come from another party. IN an industry that has long been fractured compared to other industries, conventional wisdom about who might be able to combine and how consolidated the industry can become might be thrown out the window while players who have demonstrated their ability to succeed will ultimately prevail.
I said it before – and I’ll repeat it again – that if the size of what AA seeks is too high, the creditors will look for other alternatives – and if the only way AA can succeed at its restructuring is to impose cuts that are steeper than what those creditors would receive under other plans, they will be very tempted to look elsewhere – including labor.
While labor wants to keep its membership fees coming for years to come, labor leaders are also losing something tangible now in AA’s restructuring – and they, like their membership, may believe their personal best interest will come from other plans instead of AA’s. The PBGC particularly will look at who will be able to provide the greatest return – and they are much less interested in trying to balance competing network interests or the long-term future of labor unions; their primary motivation will be financial – which will be the driving factor in AA’s reorganization overall.
Before I go any further, let me say that I still believe AA’s best most likely outcome is to emerge independent and successful. But the competitive situation is a lot different than it was during other airline BKs and it is precisely because AA still controls a number of key industry assets and revenue streams that they will remain disproportionately value relative to their own value…. AMR is about a $20B/year company in terms of revenue but even restructured will probably have a market cap between $5-8B; given that AA should be successful as a restructured company, the economics very much say that AA could be more valuable to someone else than as a standalone company.
Because of the news that creditors are apparently beginning to think outside of AMR’s plan, it is worth looking at a few scenarios.
First reality is that a combination with any other non-US airline entity will not likely change the economics of AA’s restructuring. TPG or any other investor could bring money and maybe some airline mgmt experience – but that is not to say that another party, including another airline, cannot bring or arrange the same financing and at least as good as if not better airline mgmt experience. BA or other oneworld partners could throw money into the ring – but AA’s business plan is not basically changed because AA presumably cannot increase its ties with those partners any more than they already are.
And that means that the field of investors/partners comes down to other US airlines. If the creditors are looking for the best financial deal – then the pool would include AS, B6, DL, UA, and WN – and probably not much else – certainly not US. Although US can argue that it has an inferior network, it still is not growing its revenue as much as other carriers and it is not being its peers in other metrics. It would be very hard to argue that US could be the best financial solution for the creditors. AS presents the least antitrust issues – but it isn’t at all clear they could pull of an acquisition of AMR and if they did that they would want to take on such a radically different business model than what AS does well at right now. AA might be positioned to buy AS down the road (assuming someone else doesn’t beat them to it) but it is highly unlikely that AS would want to buy AA now.
It is highly unlikely that an IT company like HP who can't even decided whether they want to build personal computers or not will jump into the fray as a potential acquirer.
Suppliers clearly might prefer one restructuring proposal over another but they are not going to be influential in the final decision. The same can be said about airline partners - there simply is far more financially at stake with AA's own creditors than with any partner or supplier.
WN agreed that it will not fly from DFW – which removes AA’s biggest revenue source from the mix. They could argue the point but it is doubtful they would win against someone else who doesn’t have that restriction – and it still doesn’t change the fact that like AS, WN does its own business model well, not the kind of business model AA operates.
Among the other 3 network carriers , UA not only has the greatest amount of total overlap but they would also gain the least by an AA acquisition. We’ve discussed US’ relative weakness w/ respect to its ability to demonstrate financial strength – and even a combined AA/US does not provide any advantage that would make it easier for AA/US to compete against DL or UA across a global network.
So, if you accept that not only do DL and UA have a strong track record of increasing stockholder value and that no combination of AA with anyone else except DL or UA will provide AA with the necessary size to compete, then you have to weigh the antitrust considerations of an AA-DL vs an AA-UA merger.
But before you do that, the reality might have sunk in to the creditors that AA’s business plan might require that AA have a long-term cost advantage because its size like US means that it cannot compete long-term with DL and UA who have larger networks. While joint ventures have been hailed as virtual revenue mergers, there is no evidence that they provide revenue at the same levels as what is obtained from a network that is controlled by a single entity.
Although some analysts argue that AA and DL have too much overlap to be considered as merger partners by the DOT and DOJ, the reality is that the two carriers overlap to any significant degree only in NYC. Since the size of slot portfolios at restricted access airports is a factor the DOT and DOJ have used to measure competitiveness, it is worth noting that at LGA, DL controls 47% of the slots based on summer 2012 schedules. At JFK DL, the largest slot holder, controls 31% of total slots or 37% of slots held by US carriers since approx. 20% of JFK’s slots are held by foreign airlines. Yet at DCA US controls 54% of slots and at EWR, CO/UA controls 75% of the slots. Even if you look at slot control for NYC as a whole, UA/CO controls a higher percentage of slots in the NYC region.
So, if DL was limited to 50% of the slots at LGA and JFK, it would still have a lower percentage of slots at the 3 NYC airports than CO/UA and a lower percentage of slots than US at DCA (which likely could not combine w/ any carrier who holds DCA slots since US already holds more than 50% w/o divestitures) – then DL could acquire approx 3% more slots at LGA – or 18 more daily flights (probably enough to bring the combined level of DL ops in any LGA-AA hub market up to AA levels of flights even though DL now (or soon will) have flights in every AA LGA market except YYZ although at lower levels than AA). In addition, without exceeding 50% of the US carrier slots at JFK, DL could still increase its JFK presence by about 60 flights/day. Thus, an AA –DL combination could pass DOT/DOJ approval if DL divested approx. 80% of AA’s current LGA slot holdings and about 2/3 of AA’s JFK holdings – and that still supposes that 50% is a hard number which DL could not exceed. If B6 and WN were each allowed to acquire 1/3 each of the divested slots at LGA and JFK, it would create a low fare carrier presence at LGA of more than 20% easily doubling WN and B6’s current holdings and allowing B6 to either be on par with DL at JFK or introduce WN or other low fare carriers at JFK.
There isn’t anywhere else on the combined AA/DL network where DL’s size relative to its competitors is problematic. Even if the concern is over the total size of DL, it is very possible that a new DL would not exceed 33-35% total US market share which is well within what antitrust law has permitted in other industries.
What is clear is that there is no basis for arguing that the US needs 3 network carriers plus one nationwide low fare carrier (WN) plus a few niche airlines like AS, B6, F9, VX, etc.
It is also possible – if not likely that a DL-AA combination would push UA to acquire US which would help address UA’s network deficiencies in the SE US with potentially some divestitures in WAS. A combined AA-DL and UA-US do not look excessively large or out of size with each other compared with WN-FL on the domestic system who would likely pick up more slots on the east coast.
Internationally, no other country has more than 2 comparable international carriers as the US currently does. Even if you look at the EU as one country, there still are pretty significant geographic differences between the strength areas of AF/KL/AZ, BA/IB, and the LH group. It could very much be argued (and I would agree) that if the US industry consolidates to the point that it might if DL and UA become the primary two US int’l carriers, then antitrust immunity and joint ventures are not necessary or appropriate. They may have helped consolidate the industry – but aren’t necessary if the industry worldwide consolidates into less than a dozen powerful global carriers.
Once again, my position remains that AA’s most likely outcome is to emerge independently. But the size of the cuts they must make – and the fact that those cuts are coming from the very people who determine AA’s future – might well mean that a better alternative and better recovery might come from another party. IN an industry that has long been fractured compared to other industries, conventional wisdom about who might be able to combine and how consolidated the industry can become might be thrown out the window while players who have demonstrated their ability to succeed will ultimately prevail.
etops1,
If AA employee compensation packages were par with LCC compensation packages, how profitable would AA be today?
You imply there's some genius in LCC's existence other than low wages.
There isn't. Please enlighten us. Other than becoming a new host for the industry parasite known as LCC, what does LCC -as a whole- offer for AA?
My take is, LCC is in no better position it was in 7 years ago.. I suspect Parker is just looking to repeat what happened back then.
http://www.post-gazette.com/pg/05142/508153.stm
(looks like bullet point #3 might work going forward)
AA can stand alone as an airline.They have the routes,hubs,and a sizable fleet and a brand image that surpasses airways.Airways had to merge or go out of business.They were extremely low on cash and basically an east coast airline.HP was an west coast airline,both were too small and had weak route maps.
AA has cash on hand and being part of the oneworld alliance gives them a better chance to emerge as a stand alone carrier as both DL and UA did.Airways always seems to pull a rabbit out of the hat to continue operations,but the have mortgaged everything they own and when other carriers decide to invade their space,it might signal the end of airways.
AA has cash on hand and being part of the oneworld alliance gives them a better chance to emerge as a stand alone carrier as both DL and UA did.Airways always seems to pull a rabbit out of the hat to continue operations,but the have mortgaged everything they own and when other carriers decide to invade their space,it might signal the end of airways.
BoeingBoy
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Except that US has a track record of terminating DB pension plans - even the agent's that was frozen in the early 90's was terminated in the second bankruptcy. HP has never had DB plans. So the likelihood of US freezing instead of terminating the AA pension plans is pretty slim.
As for the other creditors getting more, a frozen plan costs more than a terminated plan - an average of over $500 million/year for AA (+/- market gains/loses). Higher costs mean deeper cuts are necessary to successfully emerge from bankruptcy (how often have YOU mentioned DL's high cost of frozen plans?). Where would the additional cuts come from - the employees and other creditors. And for what? To let the PBGC off the hook...
Jim
In addition to BoeingBoy's comments, the PBGC and all other creditors are powerless to prevent a pension termination. If AA moves for a distress termination and meets the statutory requirements, the creditors can kick and scream but won't have a vote on that decision - the bankruptcy judge is the sole decisionmaker.
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