US Airways Confirms It Has Hired M&A Advisors For Possible AMR Takeover

[diamondcutter]

You guys had better run this all past WT, the lurker from Delta to make sure he and DL approve. I'm sure he will be along anytime now to chime in.....10, 9,8,7............

Lol ... I hear ya tic toc tic toc

 

[USA320Pilot]

FWAAA said: "Today, DL reported a gain of $43 million on the slot divestitures, which paid 2/3 of the cash DL gave US. By giving away so many LGA slots, Parker guaranteed that a combined US-AA would be hobbled at LGA compared to DL. Most. Stupid. Move. Ever."

US Airways' Investor Relations Update: January 25, 2012: The (slot) transaction resulted in a $147 million gain which the Company fully deferred as of December 31, 2011 due to the DOT operating restrictions. As these restrictions lapse, the Company expects to recognize approximately $73 million of gain in the first quarter of 2012 and $74 million in the third quarter of 2012, both of which will be classified as special items/credits.

Click here here to read the update.

 

[USA320Pilot]

US Airways Shares Up 44% YTD: CEO Says Merger Not Needed

Click here to read the story.

 

[BoeingBoy]

US Airways' Investor Relations Update: January 25, 2012: The (slot) transaction resulted in a $147 million gain...

A gain is not cash...

Jim

 

[bigbusboy]

True, if only asked once or twice. But you know analysts, and media are even worse - a dozen people would have asked the same question worded differently in an attempt to get more info than he was apparently willing (or legally able) to give. It's not like news of hiring advisers hasn't leaked out already.

I suspect that he's trying to walk a tightrope - he wants a deal but doesn't want it to go the way of the DL bid. If he's half as smart as some give him credit for, he also knows that AA offers a lot more to US than US offers to AA. So I suspect that he, the management team, and the advisors are spending many long days trying to "put lipstick on the pig". Some of the rumors indicate that he's already looking at dismantling the US network so it could feed AA's hubs instead, all to show that US offers more to AA than it appears.

Jim

One thing that puzzles me is why bring in the investment bankers and lawyers so soon after AA's entrance into bankruptcy? AA has 18 months plus extensions to develope their own POR without interference. That's roughly two years from now and in this business a lifetime. And, AA isn't moving very fast with what it needs to do. Within the first few days of filing, UA, NW, DL all wanted billions of dollars in consessions from labor plus the pensions (except DL). I know AA has time on their side with the $4 billion, but that money won't last forever.

 

[BoeingBoy]

One thing that puzzles me is why bring in the investment bankers and lawyers so soon after AA's entrance into bankruptcy?

My guess is that despite Parker's "Aw shucks, we don't need to merge" that he's somewhat desperate for one and AA is the last opportunity to snag a big one. Plus he's got a lot of work to do to come up with a believable reason why AA needs to merge with US.

Jim

 

[bigbusboy]

My guess is that despite Parker's "Aw shucks, we don't need to merge" that he's somewhat desperate for one and AA is the last opportunity to snag a big one. Plus he's got a lot of work to do to come up with a believable reason why AA needs to merge with US.

Jim

True about the "work to do" and desperation. It's going to take millions of dollars in retainer fees to figure out the numbers that might make this work and convince AA and its creditors. But, Parker can't even approach the creditors and management for two years. I know AA needs US much less than US needs AA, but they've got some real issues in terms of revenue, market share, and network feed that need to be addressed. I just fail to see any other M&A plan or go-it-alone plan that would resolve these issues. Organic growth puts capacity back into a very mature industry and B6 or AS do little for market share and revenue. US does some in terms of network feed, but would be very effective in terms of revenue and market share (if numbers are right).

 

[BoeingBoy]

They can approach management, US just can't file a competing POR. I'm sure that Parker would like to have the merger be the basis for AA's POR, just like it was for US' in BK2. That allows fleet plans, etc to be made with any merger in mind - perhaps not keeping as many AA planes, rejecting leases at airports with duplication, etc.

Jim

 

[SparrowHawk]

OK, so how they going to fund this?

 

[Move2CLT]

OK, so how they going to fund this?

Are you kidding?

That's the last thing Parker has to worry about.

 

[Ames]

I recently saw a chart (can't find it right now) showing that, after the slot swap and divestitures to jetBlue and Westjet, DL holds about 47% of LGA slots, AA holds about 21% and US holds about 16% (shuttle and flights to eastern hubs). If those numbers are accurate, DL would still hold a big lead on a combined US-AA (at about 37% of LGA slots).

Here's an article mentioning number of slots: http://www.bloomberg.com/news/2011-10-11/delta-wins-approval-to-build-laguardia-hub-as-u-s-backs-flight-slot-trade.html

I think the chart was linked by the teenager on Flyertalk (adam?) who said that DL should segregate all domestic flights at LGA and all international flights at JFK and force connecting passengers to travel between the two. The moment the press latched on the possibility that DL might bid on AA, he posted dozens of times in the DL forum that it was a done deal and that DL would own AA very soon.

IMO, the slot swap was the biggest blunder of Parker's career. He gave away 132 slot pairs worth, potentially, hundreds of millions of dollars based on the prices in the divestiture process. That was poor pricing, but the huge blunder part was that a combined US-AA won't be able to keep many (if any) of AA's DCA slots, as US now holds probably the max. Had Parker not been so hell-bent to make the big gift to Delta, and kept the LGA slots, and US and AA combined, he would have received plenty of DCA slots held by AA plus the combined AA-US would hold the maximum number of LGA slots permitted by the antitrust enforcers (would have had to divest some).

Today, DL reported a gain of $43 million on the slot divestitures, which paid 2/3 of the cash DL gave US.

By giving away so many LGA slots, Parker guaranteed that a combined US-AA would be hobbled at LGA compared to DL. Most. Stupid. Move. Ever.

Parker may not have been able to make the most of his LGA slots, but that's never been a problem for AA. If Parker takes over AA, to whom will he give away AA's LGA slots?

Your credibility was derailed in the very first sentence of this post.

 

[SparrowHawk]

Are you kidding?

That's the last thing Parker has to worry about.

OK, Boy Genius then the answer should be an easy one for you. I asked an honest question. If I wanted to be insulted and talked down to I would have stayed married!

 

[bigbusboy]

OK, so how they going to fund this?

My guess would be TPG and BA. TPG and Parker have a history together with TPG partially funding AWA's bankruptcy plus they've already admitted to interest in AA. Also, many analysts are suggesting, if something happens to AA and/or AA leaves OneWorld, it's the end of OneWorld. BA is not going to let that happen. But you're right, it will take lots of financing and the comment about Parker not having to worry about it is a bit assumptive.

 

[BoeingBoy]

Your credibility was derailed in the very first sentence of this post.

Don't know why - tis true...

The slot swap gave DL almost 50% of LGA slots. Since some are commuter slots that doesn't mean DL will have a 47% share of enplaned passengers, but since they already of the biggest market share those slots will just expand their lead.

Jim

PS - found one article that gives the percentages.
"Delta would acquire 132 slot pairs at LGA from US Airways (increasing its percentage of total slot pair holdings at LGA from 24.3 percent to 47.5 percent) and US Airways would acquire from Delta 42 slot pairs at DCA (increasing its percentage of total slot pair holdings at DCA from 44.2 percent to 54.1 percent)"

 

[BoeingBoy]

These are the comments Parker made about a potential merger with AA during the conference call:

Look, before we get into questions, I am aware that there’s a good bit of speculation about our company, and as it relates to AMR's bankruptcy and I’m aware that there are therefore, questions you guys may want to ask because indeed, many of you are paid to speculate. But in an effort to head some of that off and keep us on the focus of the day, which is our earnings and not speculation, I'm going to just -- I got a little statement here to read that I'll do and tell you what I can. And if you guys would hopefully use that as the answer to all the questions you may have, because that's going to be my answer to all the questions you have. We'll try to do it that way and head off any questions.

So at any rate, I mean, part of the reason -- I know part of the reason for speculation has been US Airways' historical comments on consolidation and being such proponents of consolidation, and the fact is we have been on record for a long time, about the needs for this industry to start earning a fair return on invested capital, and we've been on record that one of the ways to fix this problem is through consolidation.

That being said, the reality is a large amount of consolidation has already occurred in our business. We have a much less fragmented industry than we did when we merged America West and US Airways in 2005. And that industry consolidation has been a major contributor to the improved results that you see today at US Airways and throughout our industry. And furthermore, as today's results show, US Airways does not need to participate in consolidation. Our employees are running a terrific standalone airline, and we're generating financial returns that are similar to or better than our larger peers. We're extremely proud that the hard work of our team has gotten us into a position where we can control our own destiny. We can now decide whether it's best for US Airways to operate as a stand-alone company or participate in further consolidation over time, and that's what we intend to do. So while it's no longer imperative that our industry consolidate and it's definitely not imperative that US Airways participate in consolidation, we are of course always interested in studying potential in value-enhancing opportunities, and part of studying these opportunities is ensuring we have good counsel.

Therefore, as has been reported, we have indeed retained Barclays Capital, Milstein & Co. and Lathan and Watkins to help us explore our options as they relate to AMR's bankruptcy. We expect AMR will remain in bankruptcy for quite some time, and therefore, we anticipate that we and our advisors will be studying the situation for quite some time. And while we're studying the situation, we do not expect there will be any major developments, and we certainly have nothing to report today. What we are here to do is discuss our fourth quarter and full year results, and we appreciate it if you could these focus your questions on those results. So we'll see how that works. With that said, questions please.

Jim