There are rumours that Delta Airlines and Texas Pacific Group (who has extensive airline experience) are working on offers to purchase AMR, holding company of American Airlines.  Rumours that are reported in the Wall Street Journal.

It’s possible that Delta is preparing an offer but I remain fairly skeptical that they are serious about this since such a purchase would form a SuperSuper Legacy airline that would far exceed any other airline in size.  Furthermore, I’m not sure I see how Delta benefits as much from AA’s network given its already extensive network within the United States. 

Internationally, Delta already flies to more diverse international destinations and doesn’t need anything AA has to offer in terms of access.  It certainly doesn’t need or want access to the Oneworld partnership either. 

Regardless, I’ll concede that it is possible that Delta is doing work to see if it thinks it can buy AMR.  I also believe that anti-trust attorneys will point out that the likelihood of such a purchase is only made possible if Delta were prepared to give up substantial market presence in some key cities.   Cities such as New York City, for instance.  Giving away that piece of the pie would greatly reduce the value that AA offers an airline such as Delta.  Furthermore, it doesn’t enhance competition or the consumer experience one iota.  I don’t see it happening for Delta.

TPG, however, does feel a bit more viable.  It was formed by David Bonderman who had great success with its Continental Airlines buyout although it also didn’t do too well with its passive investment in Midwest Airlines.  It’s one of the few investment companies that sees potential in airlines and who has made significant attempts to enter back into that business. 

Why would TPG want an American Airlines?  Because it can do what the present AMR board of directors cannot:  change the leadership, change the business model and potentially earn a good return on investment.  The AMR board would have to admit it was wrong about a lot of things in order to reverse course and make such changes.  That’s unlikely. 

If that is TPG’s analysis, they’re likely not wrong.  The scale of operations that American Airlines has is opportunity alone.  The new fleet coming on board for the next 10 years is also similarly good.  AA also has a good network that could earn significantly better revenue that it does now.  What it takes to do that is bright and shiny new executive leadership.  TPG can lure such leadership.

The main issue for TPG, I think, is can it swing the purchase alone or does it need a partner?  I suspect it needs a partner and partners dilute the vision quite often.  If TPG is able to find partner(s) and it’s able to be the managing partner, I would say such a purchase has some fair opportunity of being a successful investment. 

I also expect that the present AMR executive leadership and board of directors will resist such a purchase adamantly.

Filed under: Airline News by ajax