American Airlines creditors want to talk merger

[WorldTraveler]

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

thank you for making my point that DL could have an edge in convincing the PBGC that they could assume responsibility for AA's plans with a freeze, not a termination.
After all, DL has the highest DB pension liabilities in the US airline industry, they are paying them, and are generating industry leading profitability while assuming an expense which other carriers are not - at least to anywhere the same degree.
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I don't realistically expect that AA's future will be decided before the pension plans are terminated - so whether AA has them or not will matter in future negotiations - but if employees can delay the termination and also argue that another POR is more valid that does not involve termination, then yes, AMR mgmt's plans to terminate the pension could be thwarted. Highly unlikely things could move that quickly - but not impossible.
But the PBGC will very much be looking for the highest return it can obtain - as well all of the creditors - and as much as you and others want to think otherwise - US and all of Parker's wise men cannot financially match a contest against a much larger, better financed airline which also happens to have a market cap about 8X larger than US - which is also generating profits at a faster rate (that is a ratio, Jim, not an absolute number which none of us expect smaller US to be able to do).
The real question is not whether the PBGC can stop a termination - but whether they can find better recovery from a source other than AMR - or US.

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US will not succeed in any takeover attempts of AA. period.

 

[swamt]

If AA and US were to merge, where would that put AA/US as far as size. 1,2 still 3? I think Dal wants to get AA to be the #1 largest. Could Dal get AA, and then UAL get US? Now there's a thought. 2 very, very large airlines and some LCC's. I still see consolidation between the LCC's sometime in the future. Someone is going to pick up Fronteir this year. Some say that SWA is too busy with the current integration of AT. But I could still see them putting in a bid to get rid of another competitor, besides they want DEN to grow big time. Never say never...

 

[ebwgs]

If AA and US were to merge, where would that put AA/US as far as size. 1,2 still 3? I think Dal wants to get AA to be the #1 largest. Could Dal get AA, and then UAL get US? Now there's a thought. 2 very, very large airlines and some LCC's. I still see consolidation between the LCC's sometime in the future. Someone is going to pick up Fronteir this year. Some say that SWA is too busy with the current integration of AT. But I could still see them putting in a bid to get rid of another competitor, besides they want DEN to grow big time. Never say never...

This industry is presently engaged in a huge poker game right now. Nobody really knows what's going to happen until all hands are played. And I suspect there'll be some big surprises.

 

[WorldTraveler]

This industry is presently engaged in a huge poker game right now. Nobody really knows what's going to happen until all hands are played. And I suspect there'll be some big surprises.

accurate statement.

DL and UA didn't make the moves they made strictly on the basis of size... they did it based on providing as much network coverage as possible. UA had a minimal position in NYC and had been reduced to the 4th largest player in Latin America; CO fixed that. DL needed a presence in Asia and the midwest - NW gave that to them. Potential combination betweens AA and DL or UA and US provide the opportunities to fill in the remaining missing or weak parts of their networks - and divestitures become more and more expected as larger and larger carriers combine. But it still doesn't stop the strategic benefits from being gained.
The problem with AA plus US is that it doesn't provide the strategic mass that AA needs to compete against DL and UA as megacarriers. There is no doubt that AA will continue to see its revenue eroded by DL and UA in key markets because DL and UA have the size to obtain corporate business in an industry where size does translate into the ability to garner more business. Combining AA w/ US doesn't solve the strategic problems which AA will have in key markets, including corporate revenue rich NYC where US has shrunk to the size where it adds very little to AA.

And then there are strategic benefits that come from the consolidation of the industry. There is a certain amount that will occur with any merger - but if that is eclipsed by other strategic considerations which will yield larger returns to other carriers, then the value of consolidation related benefits won't be the determining factor.
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And regardless of what AA does - emerge independent, merge with US, or any other smaller carrier including B6, DL and UA still have the potential to merge on their own. I would strongly bet that DL will buy AS if they are comfortable that AA will emerge as an independent carrier and US won't touch AA - and that has significant strategic implications for AA which could lose several hundred million dollars worth of west coast revenue. UA could still buy US which might further tilt the size gap in UA's favor while addressing UA's strategic needs.
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The best strategic outcome for AA is for DL and UA to decide they are content w/ what they have and for US to decide it cannot win in any type of merger in which it must compete with DL or UA who have far better track records financially and the size to accomplish what they see as necessary.

 

[BoeingBoy]

US will not succeed in any takeover attempts of AA. period.

And neither will DL...

Jim

 

[CactUS4Ever]

And neither will DL...

Jim

World Traveller and Boeing Boy crack me up. Its The Creditors will decide whats best for there money and they could care less about US AA or DL. They need to protect there money and will make a decision as a group on what needs to be done. Theres only 2 options left for AA. 1.Horton presents the creditors with some off the wall plan where AA will remain a standalone or 2. US and DL come up with a better presentation that protects the creditors money better. At the end of the day its all about corporate greed . We are just employees and a debt to the company we work for. Alot of people on this board believe we employees are assets and the creditors are working for us. Wake up People us Employees LOSE AGAIN!!! Do you think AA is laying off 13,000 employees for our own good. WAKE UP!!!

 

[TWU informer]

So AA Management went from needing $600 millon per year in cost savings, to now a $2 Billion plus reduction plan and by simple magic they have a new plan to raise $1 Billion in revenue? That is AMAZING ####!

Well, getting your cost in line with the competition is one thing and could be done.

Coming out of this with a $2.4 Billion advantage over the competition is "Kiss My Ass" material.

All that would happen is we would set a new LOW, and within months the competition either gets the same willingly or via another trip to court for them.
And the negative spiral of decent jobs and a good company will continue, and will end up in game over scorched earth for AA.

I say if you want to match the competitions cost them let's talk, if you want to set a new $2 billion industry low, then "Kiss My Ass".


That T/A everyone was harping Vote No about looks about $1.4 Billion better than the current plan.
I hope you NO VOTERS have a plan now?

 

[767 mechanic]

Sure do. I am voting no again.

 

[BoeingBoy]

World Traveller and Boeing Boy crack me up. Its The Creditors will decide whats best for there money and they could care less about US AA or DL. They need to protect there money and will make a decision as a group on what needs to be done.

Very true, but most on the creditor's committee (PBGC excluded) have a longer term view than some give them credit for. Instead of a few more cents on each dollar they're owed, they are as much or more interested in long-term relationships. Boeing is certainly in that camp - there's a lot more profit to be made from selling AA airplanes than getting a few more cents on each dollar of their claim. The investment banks that package the EETC's on airplanes and underwrite loans are in that camp - that ongoing relationship provides exponentially more return than a few cents more on each dollar of claim. The unions tend to be in that camp since mergers usually produce layoffs (in addition to any AA is planning). That's the majority of the committee right there.

Jim

 

[Deleted member 17588]

So AA Management went from needing $600 millon per year in cost savings, to now a $2 Billion plus reduction plan and by simple magic they have a new plan to raise $1 Billion in revenue? That is AMAZING ####!

That's exactly the reason why I called our executives "entirely inept, reckless and irresponsible." They're pulling ideas and business plans out of their asses without any apparent thought process involved.

 

[bluebird]

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.

Do you think a merger with United is likely?

 

[commavia]

And neither will DL...

Jim

Well of course not. But why miss an opportunity to glorify the infallible grand creation that is Delta? You know Delta never loses, and if they do lose, it's only because everyone else is losing more.

In truth, I still believe AMR has a fairly good likelihood of emerging independently. However, if there is to be a merger, I see Delta as having zero shot, since any Delta plan would involve breaking AMR up into pieces, and I continue to believe AMR's stakeholders and creditors have a lot more to lose than gain from that scenario. On the other hand, I am growing more and more intrigued by a hypothetical AA-USAirways combination, albeit from a purely network perspective. The combined network would be a strong one - USAirways brings an excellent hub in Charlotte, the second best hub in the Northeast in Philadelphia, and an excellent position in all four of the Northeast's biggest markets. On the flip side, however, the integration would of course be horrific - for understandable reasons.

 

[FA Mikey]

Does anyone need 5 hubs along the east coast? No, Not AA not UA not DL. Usiarways will add too many low yield flights that will add nothing to bottom line. What has been repeated again and again by the smart people (eolsen, fwaaa and boeingboy) here. Is once you bring up the bottom of the barrel wages of usairways, poof goes the little bit of money they were making.

I will stick with what Horton has already said. The next mergers will be with smaller carriers like jetblue, frontier etc. He says he has ideas for that kind of scenario, in the same way IAG has its wish list of canidates. I believe that TPG with IAG and jetblue will all be a part of the new AA.

 

[commavia]

Does anyone need 5 hubs along the east coast? No, Not AA not UA not DL.

Of the five airports I think you're referring to - JFK, PHL, DCA, CLT, and MIA - only two are really domestic "hubs."

PHL is the second best (and second biggest) hub in the Northeast after EWR , and will remain that way. JFK/LGA can never really be true mega-hubs on the scale of EWR or PHL because they split the market, they cater to two different markets (primarily short-haul/domestic vs longer-haul/international), and because no one airline is ever likely to hold enough slots at JFK. Same goes for DCA and IAD. Thus, PHL - despite it's so-so facilities and ATC/weather/congestion issues - is not a bad option (especially since all the other major airports in the Northeast, including definitely EWR/JFK/LGA, have all of those same issues). It is the only other huge market in the Northeast that can effectively serve as an omni-directional, all-day, domestic and international, hub.

CLT is an excellent hub - definitely not low-yielding - with a great location to handle east-west traffic flows, little low-fare competition, and strong long-term economic and demographic profile and a strong local corporate base, and the unique position of being the only other hub (behind the inevitable 800 lb gorilla ATL) that can effectively serve the Atlantic Southeast. Not bad.

DCA is simply a high-yielding, capacity/competition-restricted niche market that USAirways simply dominates. It's not really a hub, although it does cater to some connections, but more an O&D-focused operation with lots of corporate and government traffic. Again, not bad.

And then there's JFK and MIA. JFK is JFK - always has been, always will be. AA will continue to have a strong presence there by virtue of the relatively large slot holding and the best terminal at the airport. But, for the reasons above, JFK can never really be a functional hub for AA in the Northeast. AA will never be able to build a large enough slot portfolio there to build a hub, short of merging with JetBlue, which I don't see happening (and talk about the cost-escalation-rendering-a-network-unprofitable issue). And MIA is the jewel of Latin America - it is the undisputed heavyweight of the U.S.-Latin America market and will continue to be - there is no other hub in the U.S. that can match it, nor will there be. That's precisely why some continually suggest that Delta should set up a focus city there. But AA has such an incredibly strong (and growing) franchise there that AA will hold on to that for as long as AA exists. But, alas, MIA is not really much of a domestic hub and is positioned for international connections.

Thus, yes, I think it is reasonable for one airline to have large operations in five east coast markets - stretching from international-focused MIA, to a strong connecting hub in CLT, to a specialized and premium niche at DCA, to a good hub in PHL, to a strong O&D-focused presence at JFK/LGA. I don't see that being too unreasonable, since all five of those operations would all be catering to very different markets.

Usiarways will add too many low yield flights that will add nothing to bottom line. What has been repeated again and again by the smart people (eolsen, fwaaa and boeingboy) here. Is once you bring up the bottom of the barrel wages of usairways, poof goes the little bit of money they were making.

Which low-yield flights? PHX? Yeah - I'm with you on that. PHX would likely serve little purpose, be quickly rendered unprofitable, and soon be pared. But what's left - PHL, CLT and DCA - are not particularly low-yielding markets.

I will stick with what Horton has already said. The next mergers will be with smaller carriers like jetblue, frontier etc. He says he has ideas for that kind of scenario, in the same way IAG has its wish list of canidates. I believe that TPG with IAG and jetblue will all be a part of the new AA.

You may well be right. I'm not arguing that. I'm just suggesting that from a purely network standpoint, I see how AA-USAirways could definitely make sense.

 

[eolesen]

PHX would likely serve little purpose, be quickly rendered unprofitable, and soon be pared.

To be fair, PHX is a better airport operationally than DFW. You don't wind up with the expenses of deicing or the really violent weather that seems to hit North Texas, which supports a slightly lower operating cost. Geographically, it is probably an easier connection point as well for the western states (who would in their right mind do something like ABQ-DFW-SEA?...). I've said repeatedly that DFW is about 20-25% too big for its own good. Too spread out, and the cost of recovering the operation is just a nightmare when the place shuts down. Having a reliever like PHX might not be the worst thing.

Downside is that USAir is the second place player at PHX. WN owns it.