UAL + CAL = AMR + NWA

[NewHampshire Black Bears]

With UAL coming out of BK-11, there is a LOT of talk of them making "sweet overture's" towards CAL.

"THAT" IMHO would trigger an IMMEDIATE AA + NWA "cohabitation" !!!(reference point: AA's $4.3B CASH) !

So what then does Delta do ??????

Serious response's please.

World Traveler..????????

NH/BB's

 

[Ch. 12]

With UAL coming out of BK-11, there is a LOT of talk of them making "sweet overture's" towards CAL.

"THAT" IMHO would trigger an IMMEDIATE AA + NWA "cohabitation" !!!(reference point: AA's $4.3B CASH) !

So what then does Delta do ??????

Serious response's please.

World Traveler..????????

NH/BB's

I still wouldn't be so sure about an AA+NWA marriage. Their fleets, outside of 75's and some DC-9's, don't allign and IMHO, AA would have to think long and hard before acquiring NWA (I'm assuming that is what you meant since you pointed out their cash position) and therefore acquiring their labor strife. HP took a big chance by taking on US workers but at this point in time...AA would be making a serious gamble with NW's employees. I think an AA/DL combo would be just as likely. Sure...DL does not have NRT but I'm not certain that is paying dividends for NWA from what I read. DL and AA have VERY similar fleets and route structures that complement each other quite nicely. With that merger, AA would be able to pull down its Europe service (except for LHR, of course), yielding to DL, and DL could pull S.A. and AA could use the DL 777's on those routes as well as focus more on Asia as they would have plenty more widebodies. I would assume that the SE US would see a substantial service reduction but I still see this a more likely scenario.

 

[RowUnderDCA]

I totally agree with Ch. 12. Also, I'll note that JAL finally joined oneworld. Wouldn't AMR have an easier method of getting to China than to buy an airline with huge labor problems, and incompatible fleet and a totally superfluous domestic system?

 

[flyhigh]

If CO & UAL were to get together I think it might be just as likely that AA just watch it play out. NW's labor issue alone scares them away from that option and DL doesn't bring enough to the table. Sure DL has some nice things in the Atlantic, but not much more than what AA could add already minus the aircraft. A lot of M80's retiring in the next 5-7 years means you have to backfill with something soon. Lastly, it seems the only real benefit would be closing the CVG hub making ORD more popular. SLC would last a couple years before AA loses to WN and closes it as they did in RNO & SJC...

 

[RowUnderDCA]

I could understand that, too, flyhigh. I just think that nobody really wants to merge with NW, leaving LCC and maybe CO (if it is left out of the dance, which is unlikely).

Look NW, DL and LCC have the least advantageous route networks of the so-called 6 legacy carriers, with DL the best positioned. I think that DL merging with NW would be DL choosing to go out of its way to make its recovery even more difficult by saddling itself with more secondary markets and relying on expensive connections for more leisure travel and opening itself up to MORE new low-cost competition. It seems that DL is trying to build in the mega markets, with its NYC promotion. DL should leverage its presence in NYC and ATL (that's got to be well over half its system). Furthermore, AMR could get some network benefit from SLC, even if it's not a sure-fire bet for the long term.

Obviously, AMR and DL have the most compatible fleets among any feasible combination of the big six.

Alternatively, I see DL and UA, for some of the same reasons above, except it would be a sure-fire dismantling of SLC, but retention of more NYC that would have to be pared in a combo with AMR. (However, part of the theory of an AMR and DL combination is that the merging partners might be able to convince the DOT that the massive removal of clogging RJs in and out of NYC airports would be worth some of the market skewing of such a combination..... In other words, Comair and American Eagle would pay a disproportionate burden in pulling down NE capacity in such a combination. )

 

[FWAAA]

Biggest problem I see with DL-NW is that it would create a mega-carrier that would still lack access to LHR. It would have plenty of Pacific access, both China and Japan, but its business travelers would still have to defect to another airline or fly to Gatwick. And that makes no sense. The only possible way it would make sense is if the DL-NW combo could bring Virgin into an alliance. And that probably wouldn't happen.

DL-UA, on the other hand, is a combination that both of those airlines explored a few years ago and would result in a mega-carrier that enjoys lots of Pacific access (just like if DL merged with NW) but would also own plenty of LHR access. Business travelers would be able to stay within the airline to fly to China, Japan and LHR. That makes lots more sense.

AA-NW may involve completely incompatible fleets. So what? AA's plan when it bought TWA was to ditch every TWA airplane except the MD-80s. AA planned to order replacements for the 763s (and actually did - AA ordered nine new 763s in 2001 and received them in 2003) and the 757s as their leases expired. The 757 replacement program was derailed by September 11 and the ensuing five year financial quagmire. All other ex-TWA fleets were disposed of before (and some after, including the DC-9s and 717s) the deal closed. AA didn't buy TWA to get its airplanes, and it won't buy NW to get its airplanes.

If AA buys NW, it would no doubt be accompanied by lease rejections on quite a few airplanes. So what? It's not like AA and Airbus are good friends - so Airbus would get back some airplanes. BFD. Bankruptcy is a great time to tell airplane leasors and financers to shove their airplanes, and that's exactly what will happen. When HP bought US, new investors ponied up about a billion dollars. That was a small airline buying a medium sized airline. If AA announces a bid for NW, it will probably be accompanied by several billion of new financing which will easily support aircraft orders to replace the unwanted NW airplanes.

As great as DL is, it simply has very little to add to AA. If the two merged, the resulting combo would still have just the same seven weekly China frequencies and about six daily NRT flights with no 5th Freedom rights. It would result in a vastly expanded domestic AA without any additional restricted routes (where the real potential money is).

CO and UA? Maybe, but I doubt it. UA and DL? Yep.

Labor problems at NW would scare off AA? Doesn't AA already have the worst reputation in the industry when it comes to labor? How could it get any worse?

 

[RowUnderDCA]

What kind of conversation do you think JAL had with oneworld and AA just before it FINALLY, fully joined oneworld this year?

edited to add the word fully

 

[WorldTraveler]

I agree that fleet compatibility is not going to be the primary driver in a merger. If you look at the largest numbers of aircraft in any of the big six fleets, the vast majority is made up of types that are either very large (DL’s 757/767 fleet is largely compatible, NW’s Airbus fleet is largely compatible, AA has a huge MD80 fleet). Fleet compatibility is really an issue when you have 3 or 4 more types that do basically the same thing but only consist of 10-20 units apiece. ie DL and NW’s fleet is fairly compatible if you get rid of the 737 classics which do the same thing as the DC-9s etc.

Mergers will have to be driven by the ability to combine route systems end-on-end creating very little overlap – not just by city but also by region. DL cannot combine with AA or CO because of the large size each have in NYC. DL and UA cannot combine because they each have mountain hubs and together carry the majority of traffic throughout the mountain states. AA and NW substantially duplicate each other’s Midwest operations. The DOJ is not going to support any merger that will result in the downsizing of any part of the nationwide transportation system that would be necessary to remove duplicate capacity.

Yes, I do believe UA will go on a shopping spree but I think they are going to look to CO. CO has a more established NYC presence and it is more global than any other airline. While UA has tried to make IAD work, it doesn’t do well and they need to reduce it to what the local market can support. I also think that UA + DL would be too large for regulators; while they might like to see three similarly sized megacarriers, DL + UA would be so much larger than every other airline that they would certainly have the potential to be anticompetitive.

LHR will be resolved soon. The EU wants to buy into the US market. The US wants to get its airlines into LHR. EU airlines also want to be able to fly from other than their home country (see what benefit this could be to Air France or British Airways if Alitalia goes belly-up.) I think you are quickly finding a convergence of goals that will allow globalization but will also get the four non-incumbents into LHR – at least if they are willing to spend some cash.

Alliances are also an issue. AF is not going to give up DL and LH is not going to give up UA. CO is relatively non-aligned with the alliances and is the most capable of swapping alliances and still making their markets work (IAH-AMS is probably the only CO transoceanic market that wouldn’t work without an alliance partner).

I still have to believe that DL will ultimately merge w/ NW w/ DL as the survivor and UA w/ CO (probably w/ UA as the survivor). AA really does not need to merge w/ anyone since they are already the largest US airline by a factor of about 15%. A combination involving DL or UA (independently) will undoubtedly cause AA to act but they could fill their relatively small network holes much more economically and with much less disruption than they have had in previous mergers. Alaska could fill out their presence out west and would be quite compatible.

 

[Ch. 12]

Well, WT, I have to disagree that fleets aren't important and that routes are the main issue with mergers. Mergers are very complex and the ONE thing that merging companies look at is synergies. Whether you get that from combining fleets (you failed to mention that both AMR and DAL have very large fleets of MD-80's and Boeings and with whom do you mean when you say that XX's fleets are "widely compatible"?), joining route networks, joining FF groups, facilities, landing/facility rights, etc, there is not one golden egg. Just look at TWA/AMR. AA recieved STL (a hub only 258 miles from one of their other major hubs), JFK additions which they already had, and alot of rights in Europe which from what I have seen, they have not taken advantage of. No...this was yet another reason to "merge" (or acquire in this case)...to limit competition and ensure that your rivals do not take on TWA's routes and assets. Route networks are only one piece of the pie just as fleet type is only once piece.

All of that being said...I still see AMR/DAL as a very possible "dream" merger as they have VERY similar fleets and both are focused on Int'l expansion. With a combined fleet of international narrowbodies (75's) and widebodies (76's/77's), the new entity would be poised to go after the plentiful Asia market that is just waiting to erupt through the bureaucratic red tape. Being a DAL employee and historical adversary of AMR, I would hate to see the merger but I think it has the best synergies out of all listed thus far. And by that I am including trying to avoid labor strifes (ala NWA) that would only tear down any positive momentum a merger could have.

 

[B.O.B.]

I still wouldn't be so sure about an AA+NWA marriage. Their fleets, outside of 75's and some DC-9's, don't allign

Actually, Don Carty made an offer to buy NWA prior to TWA. NWA said the price per share was to low and turned it down. I think the match would work great.

Aircraft types are the only issue. Very little overlap on routes and AA would get the Asian routes they have been after for years. I think AA would keep the 757's. The 747's would be kept as welll until AA is able to buy more 777's. The 747's would be used for Asia.

My prediction:

AA/NWA

UA/CO

Delta out in the cold.

 

[Platinum Steve]

I preface my comments with the statement that I know very little about the inner-workings of this industry (soon to be revealed) and my experience comes from planting my behind into many a seat.

That said, I think that given Bear's hypothetical, Delta's in a world of hurt long-term. Maybe they could swing a deal with Alaska or US to bulk up the West Coast and broaden their base. But short of that and/or some eye-popping diplomatic changes, I just don't see how they survive so far behind those two megacarriers.

However, I'm not sure that the 2nd half of Bear's hypothetical makes much sense. As others have far more eloquently said, AA taking on NW is a headache of the highest order. Plus, the domestic side of that deal (aside from the always valuable LGA/DCA slots) is useless to AA. All they want is the Pacific routes, or so goes the conventional wisdom. I would suggest that all they really want is China, and maybe some additional slots at NRT. I don't even know that the 5th Freedom rights are all that valuable any more.

So, I throw this out to those who are far wiser than I: why wouldn't AA make a move to purchase just the China authorities and a handful (let's say 10 for sake of this discussion) of NRT slots. No planes needed; therefore, no employees needed (save maybe some ground personnel in China): merger headache averted. AA gets what they want - immediate strength in the Pacific (without alienating their new oneworld partner); NW gets what it needs: a bigger wad of cash to use to navigate bankruptcy. (Plus, it still makes the real plan - NW/DAL - realistic and worthwhile.)

OK, have at it.

 

[B.O.B.]

So, I throw this out to those who are far wiser than I: why wouldn't AA make a move to purchase just the China authorities and a handful (let's say 10 for sake of this discussion) of NRT slots. No planes needed;

AA is in need of aircraft. We have several lucrative routes from TW that we can't fly becuase we have no aircraft! I think AA would keep some of NW's 747-400 aircraft for the Pacific routes. The other planes except the 757's would be gone.

 

[WorldTraveler]

welcome, Platinum Steve. Your ideas are welcome.

The real problem w/ your proposal is that the limited entry markets is what gives value to NW. If you sell off the restricted access markets like China, there is little value left in the NW system - which would probably be against NW's loan covenants since everything they have including their route authorities is hocked.

Ch 12,
I'm not saying fleet is inconsequential but it will not decide who mergers with whom. By your argument, and I agree, DL and AA have the most compatible fleets of any two airlines. If DL and AA are the most compatible, then NW + AA is just as incompatible as DL + NW. A NW/AA fleet is very incompatible. You also neglect the fact that DL and AA have almost 50% of the traffic at LGA and BOS and are the only US carriers that have multiple transatlantic destinations from JFK. DL and AA won't happen. Period. It would never pass DOT or DOJ muster and selling off assets doesn't make sense. If DL had no other option, they would subject themselves to such an arrangement but DL will restructure and be able to choose its destiny.

BOB,
as soon as you would like to see AA and NW merge, it is very unlikely to happen for the reasons Platinum recognizes. It makes little sense for AA to get tied up w/ NW just for a couple China destinations. Far too messy.

And NW has and will decimate its own labor force. No one else has to do it for them.

 

[avek00]

Given the poor financial conditions of the legacy airlines, and the fact that the employees have been left holding the bag after EVERY significant post-deregulation airline merger, it is somewhat amusing to see airline employees suggest any hypothetical deal to be a good thing.

 

[Fly]

AVEK, we prefer employment to 6 months unemployment. Even those who find it horrible would rather stay at their airline until they find better employment. Probably a pride thing if their leaving (who wants to be unemployed?) or a love of flying thing (like me!)

I don't think that the government cares one bit that the airlines have been in a crisis mode for the last 5 years. When UAL was the biggest airline and went to merge with US, AA came out with fists flying by getting TWA to merge with them to compete. The gov turned down UAL because of monopoly issues but approved the TWA deal simply because TWA said they'd go liquidate anyway....which then made AA the biggest and left United hurting to pay US for the failed merger.

With today's market, in MHO, anything goes. I think this administration is going to let them sort themselves out and leave the survivors to reap the benefits (which explains why when US started to fail on their ATSB loan, the gov finally decided to pull out of the 'loan' game and let United be the airline to be denied even though they were one of the two airlines directly affected by 9/11 and should have been an absolute to receive the loan )

So folks, if you think there is any merit in my assumption that the government is playing hands off and that the mergers will be allowed regardless of size......who do you think will merge?

My personal favorite???? AA/UA!!! Imagine that. And what an absolute wonderful FU to the Arab countries for trying to mess with these two great airlines on 9/11 (oh, and I'd finally get to fly with my sister too! )This country would truly have the WORLDS BIGGEST AIRLINE THAT COVERS THE GLOBE!!!!!


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this writer understands the pipe dream but it's still fun.