Short version:  Non-disclosure agreements keep getting extended for more talks.  Conventional wisdom has it that most issues have a solution framework and that there are perhaps one or two sticking points.

First, who owns how much of the new entity.   The word on the street has the offer amounting to 70% of the entity being owned by AA creditors and 30% being held by US Airways shareholders.   Part of me says this is a touch inequitable but it might be palatable enough for US Airways shareholders to do the deal.

Second:  Who runs the show.  Doug Parker would seem to have the inside track based on his performance at US Airways but apparently Tom Horton (and possibly others) are making an argument for Tom Horton to be Chairman and CEO or, at the least, Chairman, of the new company.  This argument is based on the fact that Horton & Company have run a large international airline before and . . . Parker & Company has not.

Financial analysts see the consensus that this is not what should happen.   The key risks there are that Tom Horton has no employee support and particularly none from unions and lacks a certain credibility with this plan to grow capacity as much as 20% in saturated markets.  I’ll go one further:  Horton and his team have never focused on the revenue side of the business.   It’s always been about managing money and assets as opposed to growing the business.

Parker & Company have a strong reputation for returning value to shareholders, managing their operations closely and responding to problems with solutions that work.  Moreover, Parker & Company haven’t exactly been managing some 20 airplane LCC carrier either.  US Airways may not be quite the size of AA but it’s no small entity.   It’s the 10th largest airline in the world by fleet size (AA is 6th).  In Revenue passenger miles, US Airways is 11th and AA is 2nd.

US Airways does fly a number of international routes.  They just don’t fly to quite as many destinations or with as much frequency.  It’s not like Doug Parker doesn’t know how to establish a route to a South American city.   His team established a route from Charlotte, NC to Rio de Janeiro, Brazil and made it work.  That’s saying something and I want to see what they can do with AA resources.

I also think that the Horton Team just might have overplayed their hand recently with these rapid fire introductions of branding, uniforms, aircraft liveries, etc.  These acts were, in my opinion, designed to help bolster their argument that they should be in charge.  Now I think they are starting to sound shrill and I think many who care (such as the unsecured creditors) aren’t impressed with this team putting the cart before the horse several times over the past 2 months.

At this point, I rate a merger probability as nearly certain.  I think that the most that will be given to Tom Horton is a non-executive Chairman role (such as Glenn Tilton) set to expire after a few years.  Maybe.  If he stops futzing around.  I think many very capable AA executives will be retained.  I think some won’t be.  The truth is that there is a rich garden of talent at AA that can be mined.  There is a reason why Virgin Atlantic hired their next CEO from AA and why Virgin America got theirs from AA too.

I think we’ll hear the merger announcement sometime between now and February 15th.  That’s a pure guess on my part based only my sense of timing and mood in this affair.

The only thing that could make me happier in that announcement would be the news that that awful livery will be stopped and redesigned immediately.

Filed under: Airline News, Mergers and Bankruptcy by ajax
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