Leaked: US and UA in merger talks for over a month

[Whatnow?]

If you put together our balance sheet, CLT hub and east coast presence, the value of all three together are as valuable as any asian routes or international operation. They will be needed by either UA or AA to compete against DL/NW.

Good point. Why are people including most analysts overlooking this? The drivers for this new round of mergers are how to remove a competitor and how to compete against NW/DL. Not who will bring the most to the table.

 

[USA320Pilot]

In 2000 Stephan Wolf held a meeting with US Airways’ PIT-based pilots. At that meeting Wolf told attendees that United’s E&FA Department’s merger review indicated a US Airways-United merger would generate an additional $1.9 billion in revenue.

And, the WSJ indicated yesterday “the (US Airways-United) synergies would also be 'meaningfully higher' than the $1 billion-plus in annual revenue and cost savings number that Northwest and Delta have said they expect to generate in a merger.â€￾

If United E&FA Department's numbers are accurate and they are "meaningfully higher" than the $1 billion-plus in annual revenue and cost savings in the Delta-Northwest deal, according to the Wall Street Journal, then one can see why the parties are discussing a merger again.

US Airways and America West have had a difficult time integrating, but the combined company was number one in the industry in 2006 in pre-tax margins, number two in the industry in 2007 in pre-tax margins, has a growing international operation, the Northeast Shuttle, a very strong CLT hub, a very lucrative Caribbean operation, and a strong East Coast operation. When you combine all of these factors with United's operation apparently the combined financials of the new business entity are "meaningfully higher" than the $1 billion-plus in annual revenue and cost savings in the Delta-Northwest deal.

Regards,

USA320Pilot

 

[Travelpro72]

Well I'll say this. We may all have our opinions about the management here at US. They may have turned our service into a joke and generally come across as hokie pokie but if ANYTHING they are numbers people. They are strictly financial people. Lets not forget who we still have lurking in the shadows here at US.....LAKEFIELD. He's BRILLIANT at what he does. We have strengths as mentioned and though they may not be routes to Tokyo or Nagasaki they sure seem to be pieces that many have wanted over the years and continue to drool over. If I'm wrong fine as I'm no wonder kid like Boyd but US is setting something up behind closed doors as we speak. We'll all wake up one morning with our jaws on the keyboard. Again Usairways may be the brunt of many jokes but the management team we have here are NOT gonna be wiping dust off their faces while others speed away with mergers. I feel we have a mess to still clean up here but we can't sit by while the industry evolves because we're not finished.

 

[FrugalFlyerv2.0]

I agree and disagree with everyone saying US brings nothing to the table. In terms of aircraft and international flights, yes, we bring very little to nothing at all. But if you consider our east coast presence with a strong CLT hub and one of the healthiest balance sheets in the industry, that would be an asset to either UA or AA. The US franchise generates lots of revenue in spite of ourselves. In 2007 we had the worst operational statistics of anyone in the industry, yet we made money....lots of money. One could argue the only reason we aren't making money right now is because of high fuel costs. The only real SE city left to hub in after ATL is CLT. For anyone to compete effectively agianst DL/NW, they will need a strong SE hub. This fact alone makes us a strong takeover target. If you put together our balance sheet, CLT hub and east coast presence, the value of all three together are as valuable as any asian routes or international operation. They will be needed by either UA or AA to compete against DL/NW.

IMHO the most valuable parts of US are the slots at DCA and LGA. The problem is that AA, or UA or CO probably don't need LAS, PIT, PHX, and certainly only a portion of CLT and PHL. As far as the LCC's are concerned, only SW has money to spend but probably covets only portions of US. The sad part is that if only US had a more competent management team it could probably thrive as a great niche airline (given its assets/position/customer base east of the Mississippi).

 

[robbedagain]

What about a US/AS hook up?

 

[FrugalFlyerv2.0]

In 2000 Stephan Wolf held a meeting with US Airways’ PIT-based pilots. At that meeting Wolf told attendees that United’s E&FA Department’s merger review indicated a US Airways-United merger would generate an additional $1.9 billion in revenue.

And, the WSJ indicated yesterday “the (US Airways-United) synergies would also be 'meaningfully higher' than the $1 billion-plus in annual revenue and cost savings number that Northwest and Delta have said they expect to generate in a merger.â€￾

There is a difference between 2000 vs. 2008. Is it worth it for UA (or anybody for that matter) to pursue a merger with US today? UA would have to analyze:
1) What would be the costs of merging UA with US?

2) How long would combining the operations take?

3) Are the future potential revenue synergies greater than the costs?

4) Are there other options (other carriers, standalone)?

 

[bigbusboy]

In 2000 Stephan Wolf held a meeting with US Airways’ PIT-based pilots. At that meeting Wolf told attendees that United’s E&FA Department’s merger review indicated a US Airways-United merger would generate an additional $1.9 billion in revenue.

And, the WSJ indicated yesterday “the (US Airways-United) synergies would also be 'meaningfully higher' than the $1 billion-plus in annual revenue and cost savings number that Northwest and Delta have said they expect to generate in a merger.â€￾

If United E&FA Department's numbers are accurate and they are "meaningfully higher" than the $1 billion-plus in annual revenue and cost savings in the Delta-Northwest deal, according to the Wall Street Journal, then one can see why the parties are discussing a merger again.

US Airways and America West have had a difficult time integrating, but the combined company was number one in the industry in 2006 in pre-tax margins, number two in the industry in 2007 in pre-tax margins, has a growing international operation, the Northeast Shuttle, a very strong CLT hub, a very lucrative Caribbean operation, and a strong East Coast operation. When you combine all of these factors with United's operation apparently the combined financials of the new business entity are "meaningfully higher" than the $1 billion-plus in annual revenue and cost savings in the Delta-Northwest deal.

Regards,

USA320Pilot

Isn't this what I just said, only reworded?....whatever. UA and AA are already huge internationally. Whatever they still need to do in that area, they can do on their own. They already have the planes, gates, alliances and money to do it. What they must figure out is how to pay for high fuel costs and compete against a new competitor (DL/NW). And the purchase of a competitor (US) and a strong SE hub (again US) might just do it. Everybody get your Pepto Bismal bottles before reading any further. It's killing me to type this, but here it goes. Parker just might be the smart one right now and in the drivers seat. There just could be a bidding war for US by both UA and AA.

 

[usabusdriver]

THE STREET - US AIRWAYS, UNITED DISCUSSED MERGER

One thing is certain -- were United to acquire US Airways, the price would be less than the $11.6 billion that United agreed to pay when the deal was proposed in 2000. In fact, some insiders felt that regulators turned down the deal when United backed away after deciding the price was too high.


Are we worth 11.6 billion?
Does United have 11.6B and/or can it acquire the money from investors?

Rooster,

Market Cap for LCC is around $725 million. Does that answer your question?

 

[bigbusboy]

IMHO the most valuable parts of US are the slots at DCA and LGA. The problem is that AA, or UA or CO probably don't need LAS, PIT, PHX, and certainly only a portion of CLT and PHL. As far as the LCC's are concerned, only SW has money to spend but probably covets only portions of US. The sad part is that if only US had a more competent management team it could probably thrive as a great niche airline (given its assets/position/customer base east of the Mississippi).

You just identified the consolidation (deadwood) that would be eliminated in any merger with US. I would also add PHL to the list, but that's debatable. On the other hand every square inch of CLT will be needed to compete effectively against DL/NW in ATL. And I couldn't agree with you more about our management team. US is positioned very well right now to stand alone. Our balance sheet gives us access to the financial markets to grow internationally and our east coast presence will compete well against ATL. We just need to fix our operation, labor relations and customer service to do it. Current management doesn't have the knowhow to do that either. They are numbers people and that's it. We need airline Ops and marketing people to do that.

 

[CLT-Douglas]

Does anyone else consider the thought of Airbus helping finance US Airways a better deal for Northwest in return for canceling their 787 orders for more A350's and future orders of A340's or A380's to replace the 747's when they begin to standardize their fleets together in the future? Airbus stands to lose a lot if NW/DL, UA/CO and US/AA merge together.

 

[CLT-Douglas]

Does anyone else consider the thought of Airbus helping finance US Airways a better deal for Northwest in return for canceling their 787 orders for more A350's and future orders of A340's or A380's to replace the 747's when they begin to standardize their fleets together in the future? Airbus stands to lose a lot if NW/DL, UA/CO and US/AA merge together.

 

[usabusdriver]

What about a US/AS hook up?

Robbed,

Or how about a US/AS/HA/F9/NK combination and become the domestic powerhouse for feed to a growing international operation.


But what a mess for seniority integration!

 

[jimntx]

I agree and disagree with everyone saying US brings nothing to the table. In terms of aircraft and international flights, yes, we bring very little to nothing at all. But if you consider our east coast presence with a strong CLT hub and one of the healthiest balance sheets in the industry, that would be an asset to either UA or AA. The US franchise generates lots of revenue in spite of ourselves. In 2007 we had the worst operational statistics of anyone in the industry, yet we made money....lots of money. One could argue the only reason we aren't making money right now is because of high fuel costs. The only real SE city left to hub in after ATL is CLT. For anyone to compete effectively agianst DL/NW, they will need a strong SE hub. This fact alone makes us a strong takeover target. If you put together our balance sheet, CLT hub and east coast presence, the value of all three together are as valuable as any asian routes or international operation. They will be needed by either UA or AA to compete against DL/NW.

I'm not trying to start something, I'm just trying to think all this through for myself.

1. Why would anyone need a SE hub in order to compete with a combined airline that we are competing against quite well thank you very much against both airlines separately today? Our flights to/from CLT are always full. And, since CLT is not a restricted airport, we could add additional flights if we so desired. It's not an equipment and manpower issue. We have plenty of a/c sitting in the desert and lord knows we still have a number of pilots and f/as on furlough. As far as CLT's Caribbean traffic, that would be in direct competition with our existing hub in MIA.
2. I grant you, the Shuttle is worth money, but I wouldn't see AMR purchasing all of LCC just to get that piece.
3. Though PHL has large O/D traffic, we already have similar problems with baggage handling/on-time operations/etc in PHL that LCC has. Why would we want more of the same? And pay for the privilege to boot?
4. Also, granted that LCC has a strong balance sheet. However, from what I can tell from the sidelines that strength has come at the expense of employee salaries and pensions, a/c amenities and services, and so on. I doubt that AA employees would stand for having their salaries lowered to LCC's current rates; so, ask yourself...
a.Would that balance sheet be as strong if LCC employees were being paid AA rates and still had pensions? If AMR were to buy LCC, they would either have to go into BK to shed themselves of our existing defined benefit pension plan, or under Federal law bring the newly acquired employees into the plan.
b. If the tuna burrito was gotten rid of and AMR business class food (not that ours is all that great anymore, but it ain't a tuna burrito ) started being served, and closets returned to the a/c, and F/C passengers once again had legroom and a place to put their carryons, would those profit margins remain the same?

Let's not even discuss the fleet & a/c engine differences. That would increase costs right there having to maintain more a/c and engine types than we already have.

AA pulled out of a number of SE cities, but not because of competition from DL. The reason was competition from WN. WN is not going to fold their tents and go away because of the DL/NW merger. Why would AA want to return to those markets that they have already abandoned? We still serve every major city on the East Coast anyway, and like CLT the flights are full.

Given the "slick" way we handled the TW purchase, I don't think our management is yet in the mood to try another unionized workforce combination. And, unless all of you have been lying for the past 2+ years, a unionized workforce that is not yet combined or on very good terms with each other. And, considering the fact that the current AA workforce don't exactly have management on their Christmas card lists, I don't think we've heard the last of this latest round of executive bonusses awarded the same day that the company announced a $328 million loss for Q1.

 

[DCaf]

Yes, AA doesn't fly to as many one-horse towns in Europe as US does. But I'd say that AA's European presence is focused on profitable markets instead of being focused on how many dots are on the map.

Parker to Kirby: "Come on Scott, we need more dots in Europe. I don't care if they're profitable."

Typical AArogance.

 

[FlightChic]

Well I'll say this. We may all have our opinions about the management here at US. They may have turned our service into a joke and generally come across as hokie pokie but if ANYTHING they are numbers people. They are strictly financial people. Lets not forget who we still have lurking in the shadows here at US.....LAKEFIELD. He's BRILLIANT at what he does. We have strengths as mentioned and though they may not be routes to Tokyo or Nagasaki they sure seem to be pieces that many have wanted over the years and continue to drool over. If I'm wrong fine as I'm no wonder kid like Boyd but US is setting something up behind closed doors as we speak. We'll all wake up one morning with our jaws on the keyboard. Again Usairways may be the brunt of many jokes but the management team we have here are NOT gonna be wiping dust off their faces while others speed away with mergers. I feel we have a mess to still clean up here but we can't sit by while the industry evolves because we're not finished.

I totally agree. They may know nothing about customer service or how to treat employees but they sure do know how to make a dollar holler! Whereas many of the airlines are in major financial turmoil, we're actually making a profit. I don't agree with their tactics but I commend them on their ability to still make a lot of money with this mess of an airline. We all know they have something up their sleeves. They aren't the type to rest on their laurels. If there is a way for them to make money they will find it.