No benefits of merger with Oil high

[North by Northwest]

I find it interesting that these prices are being driven by speculators (NOT supply and demand), and this Administration AND Congress does nothing. There is and anti speculating regulations bill just sleeping in Congress. Yet they will spend relentless days and weeks arguing on something silly like "gay marriage". OR how to send $12 BILLION a month on Iraq.

I'd like to know if there is any "distant" relationship with speculators and the $38 Billion a quarter profit by Exxon and the others. Ancient Rome never had it so good!

 

[FWAAA]

Um, you basically said AA has paid down their debt, funded their pension plans etc....
So they would enter into Chapter 11 why?
I don't think an Airline as healthy as this would qualify.
Of course stranger things have happened.

Contrary to popular opinion, Ch 11 has no insolvency qualifications, at least according to my colleagues who practice bankruptcy law. If you're willing to flush your current stockholders' equity, you can file bankruptcy to eliminate debts. AA's problem isn't the multi-billion dollar pension shortfalls faced by US, UA and DL (pilots) which they had no chance of satisfying. But AA does have billions of dollars of aircraft debt and future lease payments for inefficient aircraft (mostly the A300s and MD-80s), and filing would allow them to walk away from those leases and debt. One common method used by healthier companies that want to clean up a few problems is to negotiate a pre-packaged bankruptcy plan and to get all (or most) of the creditors to sign off on before you file. That makes for a very short (and inexpensive) bankruptcy, completely opposite of UAL's odyssey.

Of course, AA could bluff the lessors and creditors into THINKING it would file and could probably get some concessions from those lessors and creditors without the expense of filing.

The employees probably won't fall for that bluff ever again, however, and serious paycuts would probably require a filing.

It looks to me like AA has expended tremendous energy (and dollars) to avoid bankruptcy for five years now - the time to do it was BEFORE AA let go of all that money. Individuals almost never pay down their credit cards, car loans and mortgage and THEN file Ch 13 or 7 - they do it when they can flush the most debt. I doubt AA will file, especially after having paid down billions in debt and contributing more than $2 billion in cash to their pension plans since UAL stopped contributing to theirs, but like you said, stranger things have happened.

 

[NewHampshire Black Bears]

True, but the major changes to the law don't prevent airlines (or others) from ever filing Ch 11 again; they merely addressed some of the typical complaints about UAL's three year odyssey. Since it was inevitable that both DL and NW would have to restructure, they would have been beyond stupid to wait until after the effective date of the changes. So of course they filed while they could avail themselves of the more permissive old law. But that has no bearing on whether an airline could navigate Ch 11 under the new rules. An airline could certainly prepare a pre-packaged plan and avoid most of the law's changes.

That said, I'm not convinced that AA would file now that it's paid down billions of dollars of debt and its pension plans are now 96% funded (as of 12/31/07). All AA would gain would be the disposal of inefficient leased and encumbered aircraft, some unsecured debt (there's not a lot of it) and the ability to whack employee pay some more.

 

[flyhigh]

I don't understand the original post...this analyst agrees with you therefore you are both right? Your motives for that decision are completely different though.

If DL & NW were to merge, they could drop some capacity, especially on East-West routes across the Northern tier and thus generate better revenue among the remaining flights. Additionally, it would give both airlines a much better opportunity to to sign improved corporate deals. There really isn't a single carrier who is big in the Atlantic, Pacific & Latin regions. This could be that carrier. That could shift some clients who are currently splitting business with UA & AA & CO, etc. to the combined entity. Lastly, they could close smaller, less efficient facilities like MEM & CVG that don't operate as robustly as their counterparts in ATL & DTW to save costs. There are lots of ways this could still be seen as a long term good. Personally, I think the labor aspect alone isn't worth it. I'd prefer to see natural selection play its course and have the inefficient carriers fail.

 

[North by Northwest]

I don't understand the original post...this analyst agrees with you therefore you are both right? Your motives for that decision are completely different though.

If DL & NW were to merge, they could drop some capacity, especially on East-West routes across the Northern tier and thus generate better revenue among the remaining flights. Additionally, it would give both airlines a much better opportunity to to sign improved corporate deals. There really isn't a single carrier who is big in the Atlantic, Pacific & Latin regions. This could be that carrier. That could shift some clients who are currently splitting business with UA & AA & CO, etc. to the combined entity. Lastly, they could close smaller, less efficient facilities like MEM & CVG that don't operate as robustly as their counterparts in ATL & DTW to save costs. There are lots of ways this could still be seen as a long term good. Personally, I think the labor aspect alone isn't worth it. I'd prefer to see natural selection play its course and have the inefficient carriers fail.

You have proved my point. The only way to show a merger profit is a reduction in service which means JOB LOSS. Moreover, there is no need for a carrier as you mentioned, all global service that could be achieved through a merger is now met with "seem-less" alliance codeshares. Corporate clients have far better access through alliances vs. single carriers. Excluding the fact of losing Cont. from SkyTeam which is a negative impact upon revenue.

I agree with your last statement 100%.

 

[flyhigh]

You're still not making sense. Removing service is a good thing. Right now there is way too much capacity out there to be able to charge a reasonable price. Contrary to what many people on this board think, airlines are like gas stations...you can only charge a different (higher) price is you're pricing isn't transparent. By that, I mean that the Exxon across the street from the Shell is rarely charging a different price than the Shell. If they are, it's typically for a short period of time. Unleaded gas is unleaded gas. Service from Atlanta to New York is the same on Delta as it is AirTran in most people's minds. Oil companies have increased prices by reducing the output (via closing refineries). It's only recently that supply & demand fundamentals have not been a part of oil pricing. Airlines can't individually reduce service and find success. Removing service would also make the entire system more efficient as the skies-lanes would not be as crowded...good thing for customers.

As for alliances, they are seemless for some customers but in reality, the two airlines still compete some because it's still always beeter to have all the money from people flying my metal than some of the money because I sold a ticket to someone to fly on your metal. Do you not believe that some of the airlines who have been introducing service to Houston yet have a codeshare with CO aren't thinking this. They've gotten to a point where enough people were transferring from their flights to Europe onto CO's flights to the US that the checks they were writing were able to support their own service. They have an alliance right up until it makes more sense for me to offer the service on my own (i.e. it's no longer mutually beneficial).

As for your reasoning behind job losses...I'm a little perplexed. How can you be against that yet ok with overall carrier failure? Overall failure of a carrier is likely to result in far more job losses, especially for those less likely to find a replacement position. For example, if NW & DL were to merge, you would likely see people on the very bottom laid off and probably more people kept than necessary as a result of unions negotiating peace for jobs. Conversely, if one of the two fails, let's say NW just for arguement sake, who will get hired by the carriers picking up service? Well, the remaining carriers are likely to pick up the youngest people they can without breaking discrimination laws. Additionally, they may not pick up the service in DTW & MSP...maybe they want service to Asia, but they want it from ORD, ATL, EWR, LAX, SFO, DFW, et. al...

 

[North by Northwest]

"I'm a little perplexed. How can you be against that yet ok with overall carrier failure?"

And you point is? NORTHWEST is far from looking at failure, and frankly, so is Delta. That argument is a little late...all survived.

Nothing in your argument as sustained the need for a merger from a Northwest perspective...period.