Revenue "dis-synergies" Mergers can be ugly
- Thread starter AAviator
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But, but, but . . . Laura Glading and Capt Wilson (and before him, Capt Bates) insist that the merger simply must happen or else AA is doomed. Doomed, I tell ya. 
Seriously, though, although the DL-NW merger appears to have worked better than anyone imagined it would in 2007, I think its success is the outlier and the more typical result is the UA-CO mess (and the HP-US mess). But that's a numbers-driven analysis, not an emotionally-driven "Horton must go and must be replaced by the much-better Doug Parker" Glading-Wilson mantra.
When you allow emotions to get in the way of what should be cold financial decisions, it usually costs you a lot of money. But Glading and Wilson are sure this one is different and that their emotions are consistent with better finances.
Seriously, though, although the DL-NW merger appears to have worked better than anyone imagined it would in 2007, I think its success is the outlier and the more typical result is the UA-CO mess (and the HP-US mess). But that's a numbers-driven analysis, not an emotionally-driven "Horton must go and must be replaced by the much-better Doug Parker" Glading-Wilson mantra.
When you allow emotions to get in the way of what should be cold financial decisions, it usually costs you a lot of money. But Glading and Wilson are sure this one is different and that their emotions are consistent with better finances.
But, but, but . . . Laura Glading and Capt Wilson (and before him, Capt Bates) insist that the merger simply must happen or else AA is doomed. Doomed, I tell ya.
Seriously, though, although the DL-NW merger appears to have worked better than anyone imagined it would in 2007, I think its success is the outlier and the more typical result is the UA-CO mess (and the HP-US mess). But that's a numbers-driven analysis, not an emotionally-driven "Horton must go and must be replaced by the much-better Doug Parker" Glading-Wilson mantra.
When you allow emotions to get in the way of what should be cold financial decisions, it usually costs you a lot of money. But Glading and Wilson are sure this one is different and that their emotions are consistent with better finances.
AA is doomed, merger or no merger.
I recall how in the early eighties 5% ROI was considered "Blue Chip"
Yet another example of how our society has become twisted when people expect to make double digits off their excess capital while people who work and produce that wealth are expected to work more and more for less and less.
Those double digits for them are coming from us, from our wages, our benefits, our pensions.
Disaster?
8% ROI is a disaster? A disaster is what happened to our contracts since 2001, not an 8% ROI.
If I could trade places with a 26 year UAL mechanic I would rather be a part of that disaster than ours.
Don't worry. The new paint job will take care of all our problems.
Businesses have never set a target of just 5% Return on Invested Capital. Due to the recession in the early 1980s, blue chips may have returned only 5% ROIC, but it's misleading and false to characterize 5% as a blue-chip return.
A simple search of the New York Times archives reveals a 1971 article where AT&T was seeking a ROIC of 9.5% but had been limited by the FCC to 7.5% since 1967. In the article, AT&T pointed to a decision of the Mass. state supreme court giving The New England Telephone Company a Return on Equity (book value) of 11% and declared 11% of Equity to be the minimum reasonable return. 11% of equity would in that case be equal to about 8.5% ROIC. I'd link to the article but it's a pay-only .pdf (I have a subscription). if you want to search and pay it was published on 12/25/1971.
No business anywhere has ever been satisfied with just 5% Return on Invested Capital, but if you can point to some examples where they were, then I'd be proven wrong. Most businesses set a target of 10% to 15% ROIC and have done so for many years, including the early 1980s.
Nonsense. My pension fund (CALPRs) is heavily invested in stocks. My personal retirement funds (401k, IRA, etc) are heavily invested in stocks. I suppose you could keep all your savings in cash, savings accounts, CDs and bonds, but equities permit you to share in the growth.
Targets are just that. When they dont reach them they use that as an excuse to turn on their workers. Didnt say that Busineses set that as their targets, Investors however, perhaps not publically, would value a consistant 5% return in the early 80s.. Consistant double digit returns were not the norm during most of history. Its become the unrealistic expectation of financial institutions, driven and sustained by the transfer of wealth from those who create it through their labor to those who take posession of it through financial institutions. These high returns are driven by high profits which are driven by lower wages.
Historically, over the last 75 years what has been the average ROI for the airline industry?
777 / 767 / 757 Love
Advanced
- Jan 26, 2012
- 204
- 188
Not to be a dick, but in the real world, most people when they don't like their employer, simply go looking for a new one. If you can't find a new one, than clearly, your current employer is better than anyone else, because they are still putting money in your pocket, when no one else thinks you are worth it / or has no use for you.
Point is, everyone else either works, or finds a new employer. Stop complaining and find a better job is AA is so bad and the other options are so good....
Cheers,
777 / 767 / 757
I agree with you some. Yea, who desides what the numbers should be. Over here at SWA the ROI number is and has been set at 15% For years we have been missing the goal. We've been pretty constant around 6-8%. The company (SWA) is now claiming in several news articles that this year 2013 will be the year we hit the 15% ROI. SWA is making some changes in order to get there, I hope we do, but I would find it hard to believe that our ROI doubles in one year. Although, we will start getting the synergies from the merger in 13' and the company is throwing some more fees out there, as well as the international stuff taking off in 13'. I still think it would be hard. I think if we were to buy Frontier on the cheap, it would help...
Super FLUF
Senior
- Jun 10, 2011
- 313
- 206
The decision isn't theirs to make.
Very shortly, the AMR BOD has to make a decision on the merger. The UCC obviously has input on the issue as well. These entities have a fiduciary responsibility to many entities to make the decision for the absolute best financial path going forward. To make a decision to the contrary would open them up to untold litigation.
Does anyone have ANY link to ANY well known and well respected industry analyst (i.e. Ray Neidl, Jamie Baker etc.) that is against an AA-US hookup, or that says that the merger will be a disaster or the financials will not be better?
The only articles I have seen have all said that this merger makes sense, and will be good for our bottom line.
Where are the analysts going wrong, and what do you know (specifically) that they don't?
Good point. I too have only read about all possitives as well as, "they must merge in order to compete with UAL and Delta on a more level playing field."
It's not a matter of if, but when?
Still wondering if there will be a 3-way party merge all at the same time?
eolesen
Veteran
- Jul 23, 2003
- 15,940
- 9,371
There are a few out there who have a negative view on the merger, but not too many are going public. They're choosing not to comment at all.
A few of those who are public are simply looking out for the short term gains they can extract from a brief honeymoon period, some others truly believe it's the best move that either carrier can make right now. And then there are a few who just hate AMR so much that they want to see Horton punished, regardless if it kills what's left of the company in the process.
I disagree, as I've said for the past year or so. I don't see the revenue benefit, I don't see how it will reduce costs to bring US's employees up to AA's payscales. And I don't see how all of the current hubs survive in their current state. Somethings gonna have to give.
My main concern is that I happen to believe it's a labor relations time-bomb.
Doug's made deals with all the future step children, but still hasn't figured out what to do with the the step kids from the last marriage. Once the next round of negotiations start up, all of the union AA folks are going to realize that the grass really wasn't greener. And then it will be too late to back out.
A few of those who are public are simply looking out for the short term gains they can extract from a brief honeymoon period, some others truly believe it's the best move that either carrier can make right now. And then there are a few who just hate AMR so much that they want to see Horton punished, regardless if it kills what's left of the company in the process.
I disagree, as I've said for the past year or so. I don't see the revenue benefit, I don't see how it will reduce costs to bring US's employees up to AA's payscales. And I don't see how all of the current hubs survive in their current state. Somethings gonna have to give.
My main concern is that I happen to believe it's a labor relations time-bomb.
Doug's made deals with all the future step children, but still hasn't figured out what to do with the the step kids from the last marriage. Once the next round of negotiations start up, all of the union AA folks are going to realize that the grass really wasn't greener. And then it will be too late to back out.
silverbird007
Senior
All the union folks at AA don't think the grass is greener, I prefer not to merge with US but my union forgot to ask. If we do merge we will have a vote between the APFA and the AFA, I think the APFA may get voted out of existence.
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