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- May 18, 2003
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Last week both US Airways and United Airlines publicly spoke to the benefits of industry consolidation in an apparent attempt to influence the federal government to help the beleaguered network airlines complete against the explosive growth of the LCC’s.
On October 28, Dave Siegel hinted in a speech to the Washington Aero Club that there may be corporate combinations between network airlines when he said, "Again, I don't have all the answers, but I do sense that increased cooperation, coordination, and potentially consolidation between and among network airlines must be another source of strength through enhanced efficiencies, in both marketing and operations."
Interestingly, three days later in a speech United lobbied for consolidation as well.
Jeffrey Stanley, manager of economic analysis and regulatory affairs at United, speaking at The Future of the Airline Industry conference at Washington University in St. Louis yesterday said, "A series of events changed the competitive landscape of the airline industry, including the Sept. 11, 2001 attacks, a sluggish economy and the outbreak of severe acute respiratory syndrome, or SARS, Stanley said. Those factors have helped the growth of low-cost carriers," he said.
Those carriers face plenty of issues, he said, including security, international aviation and air traffic management. But the most important challenges they face are the change in the industry's competitive environment and getting the federal government to recognize it, Stanley said.
"If things stay the way the are now, there will be several Chapter 7 (bankruptcy liquidations) down the road, and that's not good for anyone," he said. The most feasible solution to the situation is consolidation in the domestic airline industry, he said.
For more information on Stanley’s comments see the following story:
See Story
With reports that US Airways senior officers have been regularly meeting with their United counterparts, is it coincidental the business partners are publicly speaking about consolidation? Meanwhile, on Thursday United CEO Glenn Tilton told employees in a recorded message the Chicago-based airline is seeing “meaningful†results from its domestic alliance with US Airways.
At this point it’s unclear how the two companies would integrate, but in lieu of a traditional merger could the companies seek a combination similar in scope to Air France and KLM, where there would be a temporary holding company and two subsidiaries? This unique concept would permit the companies to integrate, but remain separate business entities in the short-term until at some point in the future they could merge.
The benefit of consolidation for mature industries is to create economies of scale to reduce costs through integration. There are hundreds of ways to reduce cost, but with both airlines having bankruptcy tools available, could they have significant advantages over their peers to restructure their business model?
For example, while in Chapter 11 United could reject its LaGuardia facilities and move their operations to US Airways' LaGuardia terminal. The suggested LaGuardia integration would create economies of scale, reduced facility expense, and improved productivity where employees could service each others aircraft.
Moreover, with US Airways rejecting its Pittsburgh hub and neighboring facilities and United capable of rejecting any agreement, the two companies have a unique opportunity not available to other network carriers to complete a combined restructuring without prejudice, which would be an enormous cost advantage to permit the carriers to compete with the LCC's in the short-term.
Interestingly, the Pittsburgh Post-Gazette reported today that yesterday US Airways offered to maintain a hub in Pittsburgh for another year if Allegheny County and the Airport Authority allow the airline to operate under its current lease until then.
Could the Arlington-based airline just have increased the time it needs to decide whether or not it wants to keep Pittsburgh based on how United’s reorganization unfolds and what could occur with a potential corporate combination?
For more information on US Airways’ offer see the following story:
See Story
Regardless, if the companies pursue an integration option similar to Air France and KLM, then when economics permit, the work forces could be combined and other integration steps completed to have a true merger.
Could this be a concept the parties are discussing since US Airways CEO Dave Siegel senses that there needs to be "increased cooperation, coordination, and potentially consolidation between and among network airlines?"
In conclusion, US Airways and United have tried to merge multiple times, the airlines are seeing “meaningful" results from their alliance, US Airways and Lufthansa began their alliance last week, and US Airways will enter Star alliance early next year.
With both companies publicly lobbying the government to permit some form of consolidation with informed sources stating the companies are now having high level face-to-face meetings, are we finally on the verge of the airlines announcing a unique corporate transaction (UCT), a UCT derivative, or a merger that is financed by the ATSB and RSA?
Again, its unclear how the proposed corporate combination would proceed, but with both airlines now lobbying for consolidation from this observer’s perch we could see some form of a deal announced in the near future.
Regards,
Chip
On October 28, Dave Siegel hinted in a speech to the Washington Aero Club that there may be corporate combinations between network airlines when he said, "Again, I don't have all the answers, but I do sense that increased cooperation, coordination, and potentially consolidation between and among network airlines must be another source of strength through enhanced efficiencies, in both marketing and operations."
Interestingly, three days later in a speech United lobbied for consolidation as well.
Jeffrey Stanley, manager of economic analysis and regulatory affairs at United, speaking at The Future of the Airline Industry conference at Washington University in St. Louis yesterday said, "A series of events changed the competitive landscape of the airline industry, including the Sept. 11, 2001 attacks, a sluggish economy and the outbreak of severe acute respiratory syndrome, or SARS, Stanley said. Those factors have helped the growth of low-cost carriers," he said.
Those carriers face plenty of issues, he said, including security, international aviation and air traffic management. But the most important challenges they face are the change in the industry's competitive environment and getting the federal government to recognize it, Stanley said.
"If things stay the way the are now, there will be several Chapter 7 (bankruptcy liquidations) down the road, and that's not good for anyone," he said. The most feasible solution to the situation is consolidation in the domestic airline industry, he said.
For more information on Stanley’s comments see the following story:
See Story
With reports that US Airways senior officers have been regularly meeting with their United counterparts, is it coincidental the business partners are publicly speaking about consolidation? Meanwhile, on Thursday United CEO Glenn Tilton told employees in a recorded message the Chicago-based airline is seeing “meaningful†results from its domestic alliance with US Airways.
At this point it’s unclear how the two companies would integrate, but in lieu of a traditional merger could the companies seek a combination similar in scope to Air France and KLM, where there would be a temporary holding company and two subsidiaries? This unique concept would permit the companies to integrate, but remain separate business entities in the short-term until at some point in the future they could merge.
The benefit of consolidation for mature industries is to create economies of scale to reduce costs through integration. There are hundreds of ways to reduce cost, but with both airlines having bankruptcy tools available, could they have significant advantages over their peers to restructure their business model?
For example, while in Chapter 11 United could reject its LaGuardia facilities and move their operations to US Airways' LaGuardia terminal. The suggested LaGuardia integration would create economies of scale, reduced facility expense, and improved productivity where employees could service each others aircraft.
Moreover, with US Airways rejecting its Pittsburgh hub and neighboring facilities and United capable of rejecting any agreement, the two companies have a unique opportunity not available to other network carriers to complete a combined restructuring without prejudice, which would be an enormous cost advantage to permit the carriers to compete with the LCC's in the short-term.
Interestingly, the Pittsburgh Post-Gazette reported today that yesterday US Airways offered to maintain a hub in Pittsburgh for another year if Allegheny County and the Airport Authority allow the airline to operate under its current lease until then.
Could the Arlington-based airline just have increased the time it needs to decide whether or not it wants to keep Pittsburgh based on how United’s reorganization unfolds and what could occur with a potential corporate combination?
For more information on US Airways’ offer see the following story:
See Story
Regardless, if the companies pursue an integration option similar to Air France and KLM, then when economics permit, the work forces could be combined and other integration steps completed to have a true merger.
Could this be a concept the parties are discussing since US Airways CEO Dave Siegel senses that there needs to be "increased cooperation, coordination, and potentially consolidation between and among network airlines?"
In conclusion, US Airways and United have tried to merge multiple times, the airlines are seeing “meaningful" results from their alliance, US Airways and Lufthansa began their alliance last week, and US Airways will enter Star alliance early next year.
With both companies publicly lobbying the government to permit some form of consolidation with informed sources stating the companies are now having high level face-to-face meetings, are we finally on the verge of the airlines announcing a unique corporate transaction (UCT), a UCT derivative, or a merger that is financed by the ATSB and RSA?
Again, its unclear how the proposed corporate combination would proceed, but with both airlines now lobbying for consolidation from this observer’s perch we could see some form of a deal announced in the near future.
Regards,
Chip
