Why US need a merger

[SparrowHawk]

How many majors have gone bankrupt and liquidated since 9/11? Been a whole slew of bankruptcies, but no one has ceased operations.

Waiting for someone to perish hasn't proven to be a viable strategy as there always seem to be employee groups who will take a paycut or three as well as hedge fund managers who will make a short term high stakes bet for a quick ROI.

I was using belly up in reference to a C11 filing. That how Republic got hold of Frontier for like $108 Million. That got what was left of Midwest for spare change too IIRC 45 Million.

If Republic wets the bed what price do you think they'll fetch?

 

[gaucho99]

I think if a merger is in the cards for US Airways down the road, it will likely be with the new UA. Doug and Scott are both on record as saying it makes no sense to merge with anyone but one of the other legacies. I can't see us merging with AA with their current cost structure. If they were to file chapter 11 and reorganize i could see a merger but that is a big if....AA is not close to needing to file and you can't just go bankrupt because you want to. I suppose DL is another option but with us being in Star, I think UA is the best bet.

 

[FutureUScapt]

Well I hate to be the Negative Nancy on this thread, but frankly I'm shocked at the number of people that are salivating over F9/YX.

There is one major difference that separates US from the (soon to be) 3 biggest legacies: Hubs in the top US metropolitan areas - THAT is what US needs.

F9/YX offers none of that by any stretch of the imagination, but what they do offer is hubs in two of the most LCC-infested cities in America for their size. While US could use a midwest hub, YX's MKE operation is not the answer. FL's operation is rapidly increasing, eroding any advantage that YX once had. True, DEN would be a marignally better hub from a geographic standpoint than PHX, but there is absolutely no need for both. And that of course says nothing about the 3-way slugfest that is going on there right now. We saw how that outcome worked out in the 1980s and while the overall airline environment is not the same 20+ years later, I don't expect the outcome to be any different.

I wish the folks at F9/YX the best, as they even more so than US, are underdogs in this industry. However, they have the challenges of US (i.e, LCC competition, mid-sized hubs, etc) without any of the strengths (i.e, large portfolio of slots, international presence, hubs that aren't completely trashed by LCCs). Sure they have the advantage of using cash from their regional arrangements to fund F9/YX, but if F9/YX proves to be a disaster, the investors won't continue to put up with that for an eternity.

 

[SparrowHawk]

We always hear about how hubs are so critical. Has anyone looked inside the numbers at places like ORD, DFW, JFK etc etc and looked to see what percentage of O & D the dominant carrier has? DFW AA has something like 80% and believe it or don't US is the #2 market share carrier there.

My point is this. is 70% of PHL better than 40% of JFK?

Secondly, if you look around at other business there are companies that THRIVE outside the big cities. One I'm familiar with is Charming Shoppes, INC in Suburban PHL. They have around 1200 stores in 39 states most under the Fashion Bug name. You almost NEVER see one of their stores in a large regional mall although that has changed some. What you do see if Fashion Bug stores being the anchor store of a 20 store strip mall in places like Tunckhanock, PA where they are THE national chain of junior fashions and control 85 to 90% of that market.

US has held it's own for years with less than perfect hubs. CLT is excellent to connect through. PHX is pretty good too. PHL is well PHL. Remember there was a time that US had 400 planes just to blanket the east coast and Europe. I don't think the hubs are as bibig an issue as people make them out to be. So long as one carrier doesn't dominate the very best O & D hubs out there I think US will be fine.

Additionally MKE and DEN would lose one LCC if US bought Republic. Also DP and crew have shown the ability to dance with the 800lb LCC gorilla and not get squished.

 

[AstroLounge]

Personally, I do not feel US is even contemplating ANY type of merger until there is some type of settlement with the pilots. THIS ISSUE needs to be settled by all three parties (East/West/Mgmnt) or there are two options #1 continue to operate SEPARATELY ( no singing of Kum-bai-ya) or #2 spin off both sides. Integration may be the OPTIMAL Goal in a merger but at this point but DOES ANYONE even care whether the two side integrate other than for financial gains (pilots)? There is so little interaction between flight crews of East/West right now that I would say most people would care less whether they ever INTEGRATE. It's not like East/West crews are having picnics on an overnite and we need to decide 'Who is bringing what '. As far as the asforementioned merger prospects........JetBlue (yes), SPIRIT (yes), Republic (absolutely NOT). SPIRIT would be the easiest and would give US the South Florida HUB they dismantled when it was OPERATIONAL ISSUES (the FLL terminal) that was the problem.

 

[jimntx]

Personally, I do not feel US is even contemplating ANY type of merger until there is some type of settlement with the pilots. THIS ISSUE needs to be settled by all three parties (East/West/Mgmnt) or there are two options #1 continue to operate SEPARATELY ( no singing of Kum-bai-ya) or #2 spin off both sides.

I agree. Your response is particularly applicable in the case of those who think AA will merge with LCC. Considering the mess we made of the AA-TWA merger, and the resultant bad feelings on both sides, and the various agreements we are locked into for years, does anyone seriously think that AMR would take on the current labor (pilots) mess at LCC as is?

Just consider this one point...the pilot base agreement at AA affecting the STL pilot base. Try to imagine integrating the LCC pilots who are at each others' throats over seniority with the existing AA-TWA pilot agreement.

As I understand it, the STL pilot base must be maintained as an active base until a specific pilot on the AA list becomes eligible to proffer for 777 captain and a specific pilot on the TW list becomes eligible to proffer for 767 captain. Both of those pilots are still on furlough, and when they are recalled they will be MD-80 FOs (or maybe 737 FOs. By that time we may be finally rid of the 80s. ). And, that is with an integrated seniority list. With the cutbacks in service to/from STL, a large number of the STL pilots are already flying sequences that begin with a deadhead from STL to either DFW or ORD, and end with a deadhead back to STL. Need I say more?

 

[PullUp]

I think if a merger is in the cards for US Airways down the road, it will likely be with the new UA. Doug and Scott are both on record as saying it makes no sense to merge with anyone but one of the other legacies. I can't see us merging with AA with their current cost structure. If they were to file chapter 11 and reorganize i could see a merger but that is a big if....AA is not close to needing to file and you can't just go bankrupt because you want to. I suppose DL is another option but with us being in Star, I think UA is the best bet.

3-5 years away, give or take. AA needs to wash and rinse through the BK court, and the new UAL has a lot on its plate right now..it'll take a few years to integrate fully.
AA is already losing money when everyone else is making it. What makes you think that a company cannot position itself for a BK filing? It is done all the time. Make stupid spending decisions, start routes where nobody wants to go at times when nobody wants to depart with airplanes obviously too large for the market. Or, engage in a fare sale and give away your product. Buy auction-rate securities..that's a good one.
Or, howabout buying back BILLIONS of dollars of stock to deplete the cash holdings of the company? Sell and lease back everything, and start buying new ground equipment at retail.
New marketing campaigns, bad decisions on fuel hedging contracts, signing real estate leases for inflated rent costs, repeatedly outsourcing then insourcing your reservations, maintenance, and utility.
With a little effort a lot of cash can be burned through quickly. Oh, I forgot about 'executive bonuses' for all this extra work getting the place ready for the big BK. Can't forget those!
Have a nice day.

 

[USFlyer]

you can't just go bankrupt because you want to.

Legally speaking, you or an entity can. Doing so would be stupid if you didn't have to, but there's no pre-condition for filing as I understand the law. It's been about 10 years since I took Corporate Law courses, though.

 

[Jester]

Legally speaking, you or an entity can. Doing so would be stupid if you didn't have to, but there's no pre-condition for filing as I understand the law. It's been about 10 years since I took Corporate Law courses, though.

USFlyer,

Actually, a very good supporting example of an airline filing bankruptcy when it was not "really needed" was Hawaiian Airlines in 2003. It was more of a bankruptcy to remove the pilots pension plan and to reduce contract labor costs. Sounds fairly typical except: All creditors were paid at FULL value without a discount in cash and all existing stockholders kept their shares! http://www.usatoday.com/travel/news/2005-05-20-hawaiian-bankruptcy_x.htm

I know that the bankruptcy laws have changed in recent years, so I do not know if a repeat of Hawaiian Airlines could happen again, but it was contrary to the premise, "you can't just go bankrupt because you want to."

So Recalls Jester.