WSJ: Delta, TPG Assessing Bids for American Airlines

[eolesen]

I'd have to look at the old OAGs, but pretty certain PI was the second largest. PE had 20 or so gates plus hardstands; PI had half the number of gates and no hardstands.

 

[WorldTraveler]

PE had plenty of flights at EWR but it was CO that turned EWR into a true world-class hub that business passengers took seriously. US' predecessors had a decent presence at EWR but again nothing compared to what CO delivered.... and CO's hub at EWR likely will always be larger than what any single carrier will have at either LGA or JFK... it is only the combined DL operation at LGA and JFK with a much greater focus on local traffic that gives DL a chance of reaching parity with CO/UA in NYC - and perhaps surpassing in terms of local pax and revenue. It is because the NY side of NYC is a much more divided market that it takes the combination of two airport operations by one airline to begin to compare with what CO did at EWR.

But the point is not being focused on a specific market but the fact that CO used a lot of creativity to create a market that generated substantial revenues and fueled CO's turnaround in the 90s and early 2000s. It is that kind of creativity that AA needs to successfully emerge as a standalone carrier.... and it is absolutely true that if the AA employees are not engaged in whatever new ventures AA might choose to start and have a stake in their success, then AA's turnaround will not succeed.

With all due respect, I don't believe DL will go after AA in its entirety even if it could simply because it doesn't want the labor issues. If it goes after AA it will be a large scale asset acquisition in which it can avoid representation elections.... and since the pilots are not represented by the same union, they would have to go through the process as well and I don't really think they would be interested in waiting for the representation process to play out in order to get the cash they need to support the merger.
An AS merger OTOH could be done with no representation votes.

 

[Super FLUF]

since the pilots are not represented by the same union, they would have to go through the process as well

Partially correct. If DAL acquired more than 50% of AA assets, Bond-McCaskill would kick in for binding arbitration. If DAL acquired less than 50% (most likely) then the DAL pilots could do whatever they wanted to the AA pilots.

For DAL to acquire less than 50%, it would involve a complex 3 way split of assets involving multiple airlines and financial investors. This would be a food fight of colossal proportions - It would have to pass muster of all sorts of legal and political hurdles.

I find this HIGHLY unlikely.

 

[787nightmare]

"An AS merger OTOH could be done with no representation votes."- WT

Yeah but isn't there (AS)stock generally kept too high for an acquisition??-from quietly doing things right and making money...thus making that manuever unattractive??

 

[FWAAA]

Disagree FWAAA.

US East pilot rates occurred when the company was days away from total liquidation. They have also been locked in due to the seniority fight with the West and the B.S. of the RLA. As I've posted before, the pilot job market today is far different than just a few years ago. There is a pilot job fair for Asian carriers in MIA at the end of FEB. Expect a large attendance from AA pilots if Horton gets cute and tries the USair payrate act. 737/Airbus and 777 rates worldwide are busting $200K a year and rising. these same companies are finding pilots walking to another job with equal or better pay when they're treated badly. These jobs used to pay crap and with equal work conditions. That game is changing and Horton could lose 300 777 Captains in one month if he plays it badly.

I'm fully aware of how Parker keeps his pilot payrates at the bottom of the legacy carriers, but the how and why doesn't affect my point, and that is that the US East pilots continue to show up for work and fly for those bottom-barrel rates. They aren't quitting in droves (there's still a large furlough list), perhaps they believe that an integration will happen before they retire.

You may be correct that AA could lose a lot of senior pilots in a hurry if Horton tries to slash payrates to something less than DL and UA and slightly ahead of US. He may not be willing to endure the schedule disruption that would cause. But would a lot of MD-80 captains quit in a hurry or would they see faster upgrade to 763s, 777s and 787s? If you're 45-50, you might welcome some large-scale retirements ahead of you. From the company's perspective, mass retirements don't require buyouts - the way most companies convince their grey-haired, older employees to move on.

It won't go over well when the LCC Spirit up the street pays a A319 $164/hour and Horton offers $120/hour for a 737-800 with the same FAR work rules and little retirement. Now if it was a liquidation scenario within days, and every other employee group matched the outsource/contracting/work rules and pay of the Spirit employees, then maybe some might stay to fight another day. $115k/year vs $200K a year? You tell me what guys will do.

I have no doubt that you're right - slashing payrates would cause widespread anger and pain. About Spirit - they have one payrate for all types, including their A321 (roughly a 757 equivalent) of which they have a couple. Most of their new orders are A320s. Their most junior captain is in year six of their payscale, so that's a whopping $118/hr. That likely means that their most senior first officer is in year six, earning $85/hr. No doubt there have some 15 year captains earning $164, but Spirit ain't hiring thousands of pilots - it's 10-12/mo, and that's at the bottom. Spirit's pilot costs are far below AA's and it will be a long time before most Spirit captains are making that $164. It's not unlike the UPS mechanic wage of $50/hr - they have fewer than 1,000 and they aren't hiring thousands, so it's going to be difficult to match that pay if you're in bankruptcy.

I've also mentioned pilot work rule improvements before. AMR had APA onboard before and the future retirements would have covered the changes. That plus the retirement cost is the difference between AA-DAL/UAL. Basic hourly AA pilot rates are not that far off the other main carriers on a CASM basis (arilinefinacials.com)

Other AA employee groups are far more exposed to realigning workrules and labor costs than the AA pilots.

I agree that pilot work rule improvements represent substantial opportunity for AA to lower pilot costs without slashing pay rates. History has shown, however, that bankrupt airlines tend to push their pilot payrates below those at the competition during their bankruptcy. That's what happened at US, UA, DL, NW (and many years ago at CO). If AA pilots are successful at avoiding that fate, that itself will be noteworthy.

And yes, other workgroups are probably more exposed, especially FAs, due to the number of qualified young people who have demonstrated a willingness to be FAs at LCCs for peanuts and the short training cycle and, of course, fleet - which could see significant outsrourcing.

 

[FWAAA]

"An AS merger OTOH could be done with no representation votes."- WT

Yeah but isn't there (AS)stock generally kept too high for an acquisition??-from quietly doing things right and making money...thus making that manuever unattractive??

Alaska's market cap is about $2.6 billion, about double that of jetBlue, so it would be an expensive acquisition. AA's market cap when it emerges from Ch 11 might be several billion dollars if it's valued similarly to DL and UA when they emerged from Ch 11, so it's not out of the question that AA could arrange a stock swap merger with AS. AS shareholders, however, might prefer to not take on a legacy boat anchor like AMR and might prefer to remain a profitable, independent niche airline. In addition, you gotta think that Delta would not stand idly by while AA took over DL's west coast partner. In all likelihood, there would be a bidding war. Recall the angst over the possible loss of JAL to Skyteam? DL would not want to lose AS to AA.

 

[787nightmare]

Alaska's market cap is about $2.6 billion, about double that of jetBlue, so it would be an expensive acquisition. AA's market cap when it emerges from Ch 11 might be several billion dollars if it's valued similarly to DL and UA when they emerged from Ch 11, so it's not out of the question that AA could arrange a stock swap merger with AS. AS shareholders, however, might prefer to not take on a legacy
boat anchor like AMR and might prefer to remain a profitable, independent niche airline. In addition, you gotta think that Delta would not stand idly by while AA took over DL's west coast partner. In all likelihood, there would be a bidding war. Recall the angst over the possible loss of JAL to Skyteam? DL would not want to lose AS to AA.

"take on a legacy boat anchor like AMR" ...my thoughts
I've always thought an AS/WN merge would be the next one you'd see. On surface, looks logical to me.
But what do I know about this stuff....
Yeah, I forgot about the Skyteam/Oneworld chess match thing.

 

[Jacobin777]

Looks like US Airways is a bit more serious, but as the article mentions, it would be a while before something/anything happens.

http://www.bloomberg.com/news/2012-01-20/us-airways-said-to-consider-american-airlines-merger-to-fill-revenue-gap.html?cmpid=yhoo

"US Airways Group Inc. (LCC) is studying a potential merger with bankrupt AMR Corp. (AAMRQ) that would fix a weak domestic route system at American Airlines and boost revenue, two people familiar with the matter said. "

 

[FWAAA]

Looks like US Airways is a bit more serious, but as the article mentions, it would be a while before something/anything happens.

http://www.bloomberg.com/news/2012-01-20/us-airways-said-to-consider-american-airlines-merger-to-fill-revenue-gap.html?cmpid=yhoo

"US Airways Group Inc. (LCC) is studying a potential merger with bankrupt AMR Corp. (AAMRQ) that would fix a weak domestic route system at American Airlines and boost revenue, two people familiar with the matter said. "

The part of the article that will be overlooked by many:

The current US Airways was created in 2005 when Parker, then CEO of America West Holdings Corp. (AWA), orchestrated a merger to bring the old US Airways out of bankruptcy. He failed in three additional merger attempts since 2006, including a hostile bid for Delta when that company was in Chapter 11.

Although the past is not always an accurate predictor of future events, a pattern has certainly emerged.

Will US and AA get married? My prediction: Yes, if AA management wants that to occur. And it won't happen until after AA emerges from Ch 11.

 

[damajagua]

Double like the "If AA management WANTS......."

 

[Buck]

The part of the article that will be overlooked by many:



Although the past is not always an accurate predictor of future events, a pattern has certainly emerged.

Will US and AA get married? My prediction: Yes, if AA management wants that to occur. And it won't happen until after AA emerges from Ch 11.

Isn't it true that while a pattern has been formed at least three factors are different, maybe more, going in with $4 Billion cash, new bankruptcy rules and an airline industry that seems to be shrinking in capacity and becoming partially regulated....

 

[BoeingBoy]

The $4 billion is a definite difference from previous airline bankruptcies. The new bankruptcy laws shouldn't affect merger possibilities much - AA still has plenty of time to formulate a POR even before considering the likelihood of extensions to the exclusivity period. Industry shrinkage may be a plus for AA remaining independent - easier to raise fare, etc, to improve revenue projections for the POR.

Parker has a fondness for trying to merge with carriers in bankruptcy - easier to clean up the fleet, debt, etc when at least one of the partners is in bankruptcy. So the pressure of time is not on his side. He either has to convince AA that a merger is in AA's best interests so it's the basis for the POR (a hard case to make) or wait till the period of exclusivity runs out so he can submit an alternative POR (after many of the decisions on fleet, etc have been made).

Supposedly Parker talked to AA around the time that he was talking to UA, and obviously AA said "No thanks." I don't see anything so far that would change that answer. It remains a case of US offering AA little while AA offers US a lot.

Jim

 

[damajagua]

The $4 billion is a definite difference from previous airline bankruptcies. The new bankruptcy laws shouldn't affect merger possibilities much - AA still has plenty of time to formulate a POR even before considering the likelihood of extensions to the exclusivity period. Industry shrinkage may be a plus for AA remaining independent - easier to raise fare, etc, to improve revenue projections for the POR.

Parker has a fondness for trying to merge with carriers in bankruptcy - easier to clean up the fleet, debt, etc when at least one of the partners is in bankruptcy. So the pressure of time is not on his side. He either has to convince AA that a merger is in AA's best interests so it's the basis for the POR (a hard case to make) or wait till the period of exclusivity runs out so he can submit an alternative POR (after many of the decisions on fleet, etc have been made).

Supposedly Parker talked to AA around the time that he was talking to UA, and obviously AA said "No thanks." I don't see anything so far that would change that answer. It remains a case of US offering AA little while AA offers US a lot.

Jim

You are 100% correct Jim.
But for all the US promoters it seems that as long as US comes out a winner out of this it's a done deal. Even if AA has nothing
to gain from it. A merger is when two entities of equal come together. AA/US are not equal by far. I know that there are people
at US that think AA can't survive without them. I respectfully disagree too.

 

[BoeingBoy]

You are 100% correct Jim.
But for all the US promoters it seems that as long as US comes out a winner out of this it's a done deal.

From what I see with the pilots, it's a longing for something that will "correct" their lagging careers. Starting with the big furlough in 1992 until today (two decades) US (now called East) has languished. Those furloughed in 1992 that wanted to come back were able to in 1997-1998 and there was some hiring, but 911 reversed that and those hired in 1988 and later were back on the street. Now, after two decades, recalls have occurred together with some hiring and the first retirements under the new retirement age will start in December. So the East pilots are back to where they were in 1992 just prior to that furlough - except 20 years have gone by.

In the US/HP merger, the East pilots saw West 6-7 year captains while it took nearly 17 years to even have a job on the East - an opportunity via DOH, for junior and furloughed East pilots to get to their "rightful place" of being captains. Now, 6+ years later the court battles are still going on and nothing has changed. So they look at AA and again see an opportunity, via DOH, to attain their "rightful place" and make up for the lost 20 years.

Jim

 

[wrencher]

From what I see with the pilots, it's a longing for something that will "correct" their lagging careers. Starting with the big furlough in 1992 until today (two decades) US (now called East) has languished. Those furloughed in 1992 that wanted to come back were able to in 1997-1998 and there was some hiring, but 911 reversed that and those hired in 1988 and later were back on the street. Now, after two decades, recalls have occurred together with some hiring and the first retirements under the new retirement age will start in December. So the East pilots are back to where they were in 1992 just prior to that furlough - except 20 years have gone by.

In the US/HP merger, the East pilots saw West 6-7 year captains while it took nearly 17 years to even have a job on the East - an opportunity via DOH, for junior and furloughed East pilots to get to their "rightful place" of being captains. Now, 6+ years later the court battles are still going on and nothing has changed. So they look at AA and again see an opportunity, via DOH, to attain their "rightful place" and make up for the lost 20 years.

Jim

Sounds like the EX twa FOLKS should be longing for DOH as well . Who knows anything might happen.