JUSTICE DEPT SUES TO BLOCK US/AA MERGER

[WorldTraveler]

Bob,
your assessment of the labor aspect of this merger is correct. AA labor jumped onto Parker's bandwagon because he promised that he would not implement the cuts that AA mgmt. said needed to be implemented for AA to survive as a standalone.

Parker has never addressed how AA/US would overcome having 10-15K more employees than DL or UA for similar sized operations even after the layoffs that AA has done. And you can't use the argument that AA is doing in-house maintenance where others are not now....

Parker made a lot of promises to AA/US labor about what the merger would mean to them and NO ONE in labor has asked at least publicly how the DOJ's actions will affect his ability to deliver those things, even if the merger goes thru. If there are significant divestitures or requirements to limit price increases, a whole lot of the revenue benefits that were promised to investors won't materialize which means labor won't get its cut. Suppose Parker decided to fight the DOJ so he could then come back to labor and renege on the labor promises?

As for revenues, AA's profits and strength comes from the southern half of its network - MIA and DFW - which also is aligned with its international strength to Latin America. The northern tier of its network - ORD and NYC - as well as LAX is much more competitive and includes all of its poorest performing int'l markets and those hubs and flights will have to be addressed sooner or later.

The profits that come from DFW including to Latin America are precisely why WN is chomping at the bit to expand in N. Texas, whether it includes DFW int'l flights or not. There is still nothing that will stop WN from offering low fares and connecting service via HOU throughout Texas unless the agreement prohibits WN from being able to offer int'l destinations from DAL, even if the flights stop in the US. If WN is prohibited from even offering int'l destinations on a connecting/one-stop basis via other gateways, then it is certain they will add DFW int'l flights just for the local market. They can serve other cities connecting via HOU so they don't need connecting traffic at DAL to int'l. Having a 150 or 180 seat aircraft at DFW with the sole purpose of carrying local int'l traffic will put a world of hurt on AA's Latin operations, esp. Mexico.



"Analyst Helane Becker with Cowen and Company wrote, "In our opinion, if the US Airways/AMR deal were to be permanently blocked, AMR would need to address its issues on the standalone basis, likely through capacity and headcount reductions. AMR needs to address its operations in LA and the overall network, which would result in capacity reductions and higher ticket fares. Worst case scenario, AMR would need to liquidate, resulting in significant capacity and headcount reduction

Also, AMR's chief counsel says he sees little chance of the DOJ negotiating a settlement. He also says AA really has no plan B and has no choice but to fight to win.

 

[Bob Owens]

Bob,
your assessment of the labor aspect of this merger is correct. AA labor jumped onto Parker's bandwagon because he promised that he would not implement the cuts that AA mgmt. said needed to be implemented for AA to survive as a standalone.

Parker has never addressed how AA/US would overcome having 10-15K more employees than DL or UA for similar sized operations even after the layoffs that AA has done. And you can't use the argument that AA is doing in-house maintenance where others are not now....

We still do a lot in house, AA doesn't really have much choice in that, FBOs are having a hard time getting enough workers for what they already have, they cant do AA's without charging AA premium prices, plus AA will be at least 5% bigger than DL or UA.

Here's the dilemma of what AA and others have created, if they lay people off they will be laying off their most Junior workers, and not only will they not come back, but they are losing the workers they have. The M&R workforce at AA and US is at an average age of around 55. Despite the fact they stripped us of our pensions and retiree medical guys are still leaving, they may force some to stay longer but is keeping an old (bitter) guy at work really a good strategy?

 

[Bob Owens]

Parker breaking his promises would not suprise me, in fact I expect it. One of the reasons why I was against this merger was because it would create a mega carrier built on Low wages. This carrier will be used to try and leverage wages down at other carriers. I'd rather see both AA and US liquidate than see that happen.

 

[WorldTraveler]

Bob,
estimates of how large AA/US would be relative to its peers was always dependent on the amount of concessions that would be required as well as what other carriers choose to do with capacity. Even before the DOJ's actions, AA's emergence and merger was coming very close to when several major countries in Latin America have Open Skies and the fall of the Wright Amendment and the DOJ's suit makes it completely uncertain if AA will even be out of BK or merged before these major strategic events start happening.

And AA's size, regardless of what it will be - merger or not, does not correlate to its maintenance needs precisely because of the massive refleeting they are doing. You well know that AA has outsourced enough of its maintenance on the new aircraft types and the maintenance needs of the older types will drop dramatically. UA is doing the same thing with a similar expected operational benefit. But, again, WN and DL are not afraid of adding used aircraft; DL alone is adding over 100 aircraft to its fleet (150 including the M90s and 717s) that are on average 10 years or older -mid-life aircraft. You can't help but look at the difference in labor relations between DL and WN on the one hand and AA and UA on the other and consider the possibility that AA and UA's massive refleeting is in part driven by their desire to permanently reduce their US based maintenance needs. Yes, you are right that AA can't outsource what they have now but their maintenance needs in a few years will be much less and they will be able to find places where that work can be done.

Remember that DL and WN are also removing older aircraft so their overall maintenance needs will fall. DL has said their refleeting will reduce their overall maintenance needs and costs and DL will be able to insource more work because of their reduced internal maintenance needs.

Parker's promises were simply about doing what he had to do to win labor over in the merger which was what he needs in order to change US' business strategy which has been built around being a lower fare carrier than the other network carriers, and that strategy has been possible because of US' lower labor costs.
The revenues of the combined company were never going to grow as fast as labor expected them to rise in order to bring AA and US up to comparable levels as other airlines. With divestitures and likely limits on AA/US pricing and capacity, the economics of the merger for labor are even more questionable and labor at both sides should realize that.

 

[Black Magic]

People...don't take WT's postings to heart. He also posted back that the new DL/NW would also be merging with AA if you can believe that nonsense.

 

[WorldTraveler]

No, I said that DL would bid for AA assets if it came down to a fire sale which hasn't happened. If you believe otherwise, please find the proof.
I also said that a threat of asset purchases could have pushed for a more expensive deal in an AA-US or AA-BA merger/acquisition. Remember, Parker tried to use the same tactic with DL's creditors but the creditors rejected Parker's deal anyway.

BTW, Baer, the DOJ guy who is leading their case against AA-US said that US' hostile takeover of DL was on the DOJ's radar and would have been rejected if it had been accepted by the creditors. Yet, DL-NW, which was a larger merger than DL-US, did go thru, confirming that there is a difference in overlap and competition involving different mergers and the overall size is not the issue. Too many people have consistently ignored the true competitive issues with AA-US while trying to say the DOJ is just picking on AA-US.

Just because AA and US are the last two potential merger partners doesn't mean they can produce a merger that meet each other's true needs or be acceptable to regulators.

 

[Black Magic]

No, I said that DL would bid for AA assets if it came down to a fire sale which hasn't happened. If you believe otherwise, please find the proof.
I also said that a threat of asset purchases could have pushed for a more expensive deal in an AA-US or AA-BA merger/acquisition. Remember, Parker tried to use the same tactic with DL's creditors but the creditors rejected Parker's deal anyway.

BTW, Baer, the DOJ guy who is leading their case against AA-US said that US' hostile takeover of DL was on the DOJ's radar and would have been rejected if it had been accepted by the creditors. Yet, DL-NW, which was a larger merger than DL-US, did go thru, confirming that there is a difference in overlap and competition involving different mergers and the overall size is not the issue. Too many people have consistently ignored the true competitive issues with AA-US while trying to say the DOJ is just picking on AA-US.

Just because AA and US are the last two potential merger partners doesn't mean they can produce a merger that meet each other's true needs or be acceptable to regulators.

Oh you said it all right, I don't know many thousands of nauseating posts back but its there. No back tracking now big boy. Just the same as you said the AA creditors would never go for a merger with US. But here we are now.

 

[WorldTraveler]

You're not liking what you are reading.... not the first time that has happened on this board.

No, I did not say that DL would buy AA in its entirety. Again, if you think so, find the evidence.

And, yes, I did believe that AMR's creditors would back a standalone plan over a merger. But Parker decided to woo AA labor which put on a childish fit to convince the creditors that they had better do what they wanted (reduce the pain AA mgmt. was asking of AA labor).

Now that AMR could be stuck in BK for months longer and competitive pressures on AA continue to build, you can't help but wonder if the creditors are seriously having second thoughts.

Add in all of Parker and company's communications that have now become public and there seems little doubt they would like to have a redo.
Problem is that they cut AA mgmt. off at the knees and there is no quick fix for a plan B - but you can bet there are people at Centreport who are busting their buns to come up with one.

 

[FWAAA]

And, yes, I did believe that AMR's creditors would back a standalone plan over a merger. But Parker decided to woo AA labor which put on a childish fit to convince the creditors that they had better do what they wanted (reduce the pain AA mgmt. was asking of AA labor).

Now that AMR could be stuck in BK for months longer and competitive pressures on AA continue to build, you can't help but wonder if the creditors are seriously having second thoughts.

Agreed. I have to think that AA management and the UCC have already met and at least broached the subject of whether it might be in their best interest to abandon the merger and get a new POR in front of the court and the creditors without waiting for the antitrust suit to play out.

Sure, that might entail paying US the breakup fees specified in the merger agreement, but those aren't prohibitively costly and, of course, can always be litigated.

Add in all of Parker and company's communications that have now become public and there seems little doubt they would like to have a redo.
Problem is that they cut AA mgmt. off at the knees and there is no quick fix for a plan B - but you can bet there are people at Centreport who are busting their buns to come up with one.

I assume that some AA management has already left the building - linking the merger to AA's POR really limits AA's flexibility. Parker has essentially converted a hostile takeover (which this is) into a transaction where AA management is forced to help him. At least until the creditors say "enough is enough" and give management the OK to proceed without US.

 

[Hatu]

For what it's worth:


MIAMI/ATLANTA (Reuters) - Officials in three states are pushing back against the U.S. government's attempt to block the proposed merger of American Airlines (AAMRQ.PK) and US Airways (LCC) to create the world's biggest airline, saying the combined company would benefit their local economies.


. . . some local political and business officials in Florida, Texas and North Carolina, which are home to large hubs for American and US Airways, are asking the federal government and supporting states to reconsider the lawsuit.

http://finance.yahoo.com/news/officials-three-states-fight-suit-221057301.html

 

[eolesen]

Wow, the chambers of commerce and a mayor?

I'm sure all the anti-trust expertise in those groups and the letter writing campaign by APFA must really have the DOJ rethinking things by now...

FWAAA, yes, I think there may be a few at the VP level who've already accepted job offers elsewhere. I doubt many will think twice about sticking around to see how it works out.

And yet another consequence of the poorly thought out bankruptcy knee-jerk reaction law changes in 2005: AA never went to court to ask for retention bonuses for its execs or key individuals.

The retention scheme that was offered as part of the merger would be null and void if the merger is nixed.

 

[WorldTraveler]

FWAAA,
not only does AA have a plan B, even if it has to be updated and refined, but no one should forget that AA mgmt. works for the creditors while AA is in BK and the creditors want AA to pursue the path that will deliver the highest return for them, regardless if it produces the best long-term outcome for the company. In a couple years, if even that long, the creditors will have been paid off while AA with a merger or as a standalone will have to continue to exist.
Parker improved AMR mgmt.'s standalone offer to the creditors and to labor and that is why he got their support.
It is not even a given that the creditors will walk away even if the DOJ requires significant divestitures if they can get paid off before the implications of what new AA has to work with become apparent.
All the crocodile tears from AA mgmt. about not having a plan and how AA is vulnerable without a merger have to be weighed against the statements that AA mgmt. made a little over a year ago saying they could exist as a standalone company - and the DOJ knows it.

Labor has a longer term view but the creditors are the ones who are calling the shots and the creditors want the highest recovery in the shortest amount of time.

 

[robbedagain]

Except wt theres a big article on www.justplanenews.com thru usatoday i think and it is titled AA has NO PLAN B if the merger fails

 

[WorldTraveler]

yes of course they will say that because they have to convince the DOJ that AA's future is at risk if they don't merge even though AA mgmt. said just a year ago that AA could be viable as a standalone company.

This is all posturing.... airlines are high profile companies but that doesn't mean the DOJ is going to cave to political pressure. They had a case and even if Obama himself replaces half of the DOJ officials, the case has to go on or the DOJ has no credibility for other cases in other industries if it can be bullied around.

AA and US aren't going anywhere regardless of whether they merge or not. The creditors want their fast buck, Parker wants to be able to change US' business plan and solve a number of major strategic shortfalls (including US' labor's justified demands for higher pay), and AA is just being whipped around by everyone who thinks they can benefit from AA's demise. That's what life in BK is all about, unfortunately. The faster this is resolved, the sooner everyone can get on with whatever is going to happen.

 

[BigMac]

Except wt theres a big article on www.justplanenews.com thru usatoday i think and it is titled AA has NO PLAN B if the merger fails

http://m.usatoday.com/article/news/2681345
This is absolutely ignorant and a possible scare tactic.
"No plan B"? Give me a break! You would think a major carrier would have a plan A-Z. No plan B is just admitting there are uneducated idiots running this place. An admission of stupidity IMHO.