In a recurring theme of celebrating what didn’t happen, American Airlines CEO Tom Horton has celebrated that, once again, American Airlines has not made a profit.

This time in April.

So, what are they celebrating?  A fairly mild closure of the gap of losses year over year.  April 2012’s loss was $142 million ($67 million if reorg costs weren’t counted, but we do count them.)  This year, it’s down to $105 million ($39 million if you exclude reorganization charges and I don’t.)

Why do I count reorg charges?  Because in the airline world, something always happens.  In each financial reporting, an airline will mention that it had “one time” expenses.  The problem is that these one time expenses always happen, they are just different each time.

So, is this improvement?  Sure but we knew that was coming.  Remember the last 18 months?  AA has been massively reducing costs?  This is the natural outcome of reducing those costs.

The real nugget is in the revenue picture and I’ll point out that AA mentions that it’s revenues are down by $48 million compared to last year.  That is a problem.  And it’s a problem that many have pointed out over and over again.

No airline gets “fixed” by merely reducing costs and that is especially  true of American Airlines.

The time to celebrate is when costs are down, the fleet is renewed and revenues are up.

When will that happen?  I’d say about 2 to 3 years after Doug Parker and his team have taken over completely.

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The Teamsters are trying to gain the right to represent mechanics at both American Airlines and US Airways in separate campaigns. Today, they’ve presented signatures of, supposedly, more than 50% of the mechanics at American Airlines.

Meanwhile, the TWU and the IAM are agreeging to jointly love each other and represent groundworkers at the new merged airlines. But they’re both denouncing the Teamsters move to represent the mechanics.

American Airlines’ mechanics are currently represented by the TWU who are, according to some, perceived as not having done enough to preserve jobs.

It’s also notable that the Teamsters have taken some heavy losses in union elections of late.

What’s it all mean? It means that unions cannot actually get together and do a good job of both representing their membership, preserving jobs and working with an airline.

The impact will not be to American Airlines. It will come at the expense of union members. What union members are failing to realize is that they have limited amount of power and they are completely replaceable.

I would refer the mechanics to the mechanics of Northwest Airlines and their strike in 2005/2006.  Northwest Airlines was able to fly through the strike and while it was somewhat impacted, the airline survived nicely and got a settlement with the strikers that worked to their advantage.  At no time did the striking mechanics affect the airline in such a way that it became critical.

Some might dispute that.  I would point out that that strike lasted 15 months.  American Airlines (and US Airways) can find plenty of people to service their aircraft should the need arise.

The best thing that the TWU did for mechanics and others at American Airlines was that they did preserve jobs.  Far more than I would imagine possible.  They got their members a stake in the new company which will bring significant value to the table and they struck a deal that could be re-negotiated for better terms (and was) if someone else got a better deal.

If you can’t celebrate that and prefer shooting yourself in the foot, you deserve to be out of a job.

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American Airlines and US Airways are working together on an integration plan presently under the direction of US Airways’ Robert Isom and American Airlines’ Beverly Goulet.  The timeline for consummating the deal is still some time in the 3rd quarter and that appears on track as the US Bankrtupcy Judge (Sean Lane) has now signed the papers approving the merger.

The next big leap will be governmental approval of the merger which almost all expect to be pro forma at this point.

Will the airline sing with one voice upon the merger completion?  No, that will take a while.  After the deal closing, the next big milestone will be a single operating certificate and that will take a while to get.  The two airlines have a pretty divergent fleet and harmonizing procedures and ensuring pilots from what are essentially 3 different groups are able to move forward as a single airline will take some time.

This merger integration will take a while and measuring it on speediness would be a mistake.  It’s important to get things done in a timely manner, it’s even more important to get the decisions made correctly.

Many of the decisions that must be made are the kind that could impact an airline for a decade or more.  Reservations systems stick with airlines for multiple decades, airplanes are a 20+ year asset and employees with institutional knowledge shouldn’t be driven away.

It will take time.

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100 points if you know the title reference.

Southwest Airlines is making incremental progress towards going international with steps like instituting flights to San Juan, Puerto Rico and rebuilding Houston Hobby Airport into an international gateway.

Some think that San Juan is international travel.  Not so much.  It’s a US Territory but, hey, it’s in the Caribbean and many of its residents speak Spanish.

Southwest will embark on travel to Caribbean and Mexican destinations over the next 2 years as it replaces Airtran flights with its own.  To add density to those destinations, Southwest is eyeing other destinations in Central and South America that are within range of its 737-800 ETOPS aircraft and which could be served well from Houston, TX.

It’s got some things to do before that happens.  First, it needs to build that international terminal fast.  Second, it needs to build an international reservations system and it’s got Amadeus working on that part.  Sabre is working with SWA on its domestic system and while many think that Amadeus might take over SWA, I do not.

The bottleneck isn’t going to be that terminal, however.  It will be the IT systems . . . again.  Southwest still hasn’t gotten things kicked into a gear with a Big Boy reservations system that will permit it to interface with other airlines or travel systems.

More importantly, it’s time SWA rework its own website which certainly met the needs of its travelers in 1999 but it really does not now.  It’s time to build a travel site that shows the opportunities for travelers instead of being a place that continues to look “temporary” when it comes to booking a flight.

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US airways has announced a $55 million profit (excluding special items, etc) vs American Airlines’ $8 million profit (excluding special items) and that’s coming from an inferior network and an airline that is roughly 1/3 the size of American Airlines.

This is great for US Airways, great affirmation for the team that will run the new American Airlines and I do wonder when these folks will get this merger done.  My best guess is October but they’ll suitably impress me if they get it consummated by September.

This merger integration will be fascinating to watch in comparison to the Delta/Northwest and Continental/United mergers.  US Airways CEO Doug Parker and his team all have merger integration experience but none have experience with the scale that the new airline will possess.  It will be hard for them to balance the pull of the AA insitutionalization with the attraction to adopting the US Airways Way.

What I most look forward to is seeing the new airline about 18 months after the merger deal is closed.  I want to see how the AA network is reorganized and made to work by the US Airways team and Robert Isom in particular.

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Bankruptcy Judge Sean Lane has disallowed the $20 million kiss for American Airlines CEO Tom Horton.  Horton was to receive roughly half in cash, half in stock as severance upon his departure from the new company (to be called American Airlines Group) formed after the merger.  His departure was scheduled for the first annual meeting to be held after the merger which most believed would be in May as has been tradition for American Airlines.

I vociferously disagreed with this severance payment.  So did a US bankruptcy trustee who argued that it violated federal governing such things in bankruptcies.  After review, Judge Lane offered that the idea that this was taking place post bankruptcy and therefore not entirely within purview of the court was a legal fiction.  I couldn’t agree more.

When you get a severance of that size, it should be for accomplishing something.  Based upon all that has come to light so far on the journey of both US Airways and American Airlines, Tom Horton didn’t have much to do with the success of this agreement.  In fact, if anyone really had much to do with getting the company into alignment with markets, it was Beverly Goulet, AA’s Chief Restructuring Officer.

Horton sought to delay, obfuscate and sabotage the merger at most every point.  He has made public arguments that he’s the superior CEO to Doug Parker in semi-veiled statements made to the press.  The problem with that is there is actually no evidence of what value Tom Horton has brought to the process in approximately 16 months.

Is it the atrocious livery that has been perpetrated on those aircraft?

Judge Lane has pointed out that when the new company is formed and has exited from bankruptcy, the new Board of Directors can vote on this severance.

I have long felt the current American Airlines Board of Directors has not governed the airline well for many years.  Like so many boards recently, it has seemingly given blanket endorsements to the CEOs without regard to assessing what leadership of the company has achieved and without determining if the course set by the leadership is a sound one.

But, man, they sure can vote bonuses well.

$20 million is too much for Tom Horton and what he brought to the table.  But if everyone truly thinks it is necessary, then I would suggest that the new Board vote on it and give it to him.

I would point out that Horton not only isn’t needed to make this new airline work, he’s not wanted.  This deal doesn’t need him.

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I like how Turkish Airlines has operated its business.  Over the past decade, the airline has transformed itself from a primarily government owned entity to a primarily private owned entity that is earning an impressive profit. Turkey has focused itself on supporting its airline business by promoting growth through the development of new airports that could serve as “Middle Eastern Hubs”.

The Turkish government has managed itself well in these economic times and considering their strong desire to enter the European Union, you have to give them credit for being aggressive.  It’s notable that they are not suffering economic crisis despite the fact that their mediterranean neighbors largely are bankrupt and in smoking heaps presently.

Turkey committed itself to modernizing how it interacted with its airlines and realized that by making themselves an attractive country for international hub operations, it would attract investment into other segments of the nation’s economy.

Contrast that to how Italy has behaved with Alitalia or Ireland with Aer Lingus.  Both of these supposedly more modern, more liberal and more free nations have worked exclusively towards protecting the employees of those airlines by propping up those airlines with support.

As a consequence, the airlines operate poorly (Aer Lingus is OK on the long haul front but that amounts to 7 aircraft presently) and are shoved around by their own unionized employees.  If someone suggests selling the airline, particularly to an aggressive company, or doing anything to improve productivity, the unions call a strike to teach the government and airline managers a lesson.

Why would anyone do business within such a framework?  The answer is that no one does.  Many may have disapproved of Ryanair taking over Aer Lingus but there would have been some pretty strong benefits to Ireland.

Alitalia is simply once again on the path to a merger with a larger, better run European airline.  Unless the Italian parliament can find a way to preserve domestic ownership without running afoul of EU regulations.

I can’t think of a government run airline or airline industry today that is running successfully.  I can think of many which are jobs programs but that’s it.  What’s crazy about this is that the countries suffer massively as a result.

Countries like Ireland, Italy, India or Argentina all suffer far worse economic impacts overall from a failure to address the “airline problem” within their countries than they benefit from providing a jobs program.  Those jobs programs are heavy concrete shoes for those nations economies and they signal that those countries aren’t prepared to do business in a fair and equitable manner.

Yet the supposedly backward and inferior Turkey and its airline get out front and decide to make something of itself.  The contrast is remarkable.

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American Airlines lost $192 million in February and there is virtually nothing there to blame on the bankruptcy.  You can even see significant cost reductions where you would expect to see them.

And that’s the rub.  Costs are the 1st half of the equation.  If you don’t solve for the second half, you’re done.

That second half is revenues which do not reflect any work done in the last year to improve them.  To the contrary.

Once more, this is why I strongly believe that Doug Parker & Company are the right choice for leading the merged US Airways / American Airlines.  It’s also why I strongly believe that Tom Horton should be leaving when this merger deal closes.  This bankruptcy reorganization reflects emphasis on cost cutting only.

Anyone who believes the rebranding effort that was rolled out in January was an effort to improve revenues has got to look at the bigger picture.

A new aircraft livery and logo doesn’t attract customers.  And it’s the fallacy many “finance” people make.  Customers come to your business because you have a good or great service offering at a value oriented price.  Period.

And the US Airways team understands that.

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The bankruptcy court has approved the US Airways / American Airlines merger as of yesterday without approving the controversial Tom Horton Grand Compensation Plan.  This approval means that the two companies can continue progress towards putting together a complete reorganization plan that defines the merger in the exit from bankruptcy.

It’s well known that I disagree with a $20 million compensation plan for Tom Horton.  In fact, I think that Tom Horton remaining onboard as non-executive chairman is an equally bad idea.  It’s notable that despite Jeff Smisek’s strong personality, the United merger really didn’t get traction and coalesce until Glenn Tilton left the company as non-executive chairman.

Tom Horton has worked too hard to stay out front of this and claim it as his own success.  The news story he gave the Dallas Morning News as an execlusive was, in my opinion, offensive towards anyone else who had a hand in the merger and who came to the table with clean hands.

I think $20 million to lead a company for effectively 2 years (and let’s not forget that Mr. Horton has been receiving an exceptional base salary as CEO already) in which its successful exit from bankruptcy is facilitated by US Airways is way too excessive.

Pay the man $10 million, cash money, to leave upon the deal closing.  Even that is kind of blood money as it  amounts to $5 million / year cash money for 2 years of Chairman/CEO service.  That’s a great paycheck by any standard and certainly so for someone leading an enterprise that had fundamentally failled while under his CFO leadership.

Whether or not the $20 million package is legal or not doesn’t really concern me at this point.  If we’re upset about a $27 million house in London at the beginning of this bankruptcy, we should be pretty upset about a $20 million compensation package given to this CEO.

At least AA will realize a profit on the house.

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U.S. Bankruptcy  Trustee Tracy Hope Davis is objecting to American Airlines CEO Tom Horton’s Platinum Parachute of $20 million in compensation for stepping down shortly after the US Airways / American Airlines merger is complete.

Actually, she doesn’t like the plans for severance and retention payments being made to many managers at American Airlines  and she wants it changed.  Davis points out that AA should show “the payment is part of a program that is generally applicable to all full-time employees and the amount of the payment is not greater than 10 times the amount of the mean severance pay given to non-management employees during the calendar year in which the payment is made.”

Most will assume that this won’t pose a problem for American Airlines in front of the judge and that the objections will be ruled against or a compromise found shortly.  I’m not sure this is true.

Emotions about such payments runs high these days and federal law changed how that kind of compensation might be given quite some time ago (2005 during the Bush Administration).  Personally, I find the payments being discussed fairly egregious.

I do not like seeing executives of a company receiving extraordinary compensation for having done a mediocre to poor job in managing that company.  Gerard Arpey is gone, that’s true, but the the entire executive team being compensated in this manner, including CEO Tom Horton, were all on duty when mediocrity was being executed.

American Airlines’ bankruptcy is somewhat unusual in that they executed it when the company still had a great deal of cash holdings (which is really the right time to do a bankruptcy, to be honest) but there remain some facts that should be kept in mind.  American Airlines was clearly headed towards bankrtupcy.  AA had no positive relations with any union whatsoever.  AA had been unable to reduce costs (not just labor but elsewhere too) for years.

And regardless of Tom Horton’s claims that the idea for the merger was his, it wasn’t.  Why should mediocrity be rewarded?  To get them out of the way?  I have an idea:  Let’s deliver a letter that says “I’m sorry but your services are no longer needed.”  Why should the executives be paid to leave and not make trouble when regular employees will simply  be told their services are no longer needed?

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It’s a busy week for me but I want to keep making some comments on various items.  There just won’t be the usual analysis until I settle down again.

On the US /AA merger:  The criticisms, comments and half-truths about reduced competition from this merger.  I realize that certain metropolitan areas have a lot to lose if a hub or focus city leaves your area.  Air fares will go up.  I also realize that there is a perception that air fares rise each time a merger happens.

A lot has changed in the airline industry landscape over the last 5 years.  It’s not your papa’s airline industry anymore.  For one thing, it’s focused on profits, not market share.  For another, if there are excessive profits on a route, there will be an airline that will enter that market.  It’s happening all around us.  Just look at the DFW market where AA is so dominant that you can sit at the DFW airplane viewing center and not see a different livery on an aircraft for an hour.

Spirit Airlines is here, jetBlue is here, Virgin America is here,  Frontier and Westjet (starting soon) are here.  That is some serious LCC competition.  Delta Airlines has entered AA dominant routes and United is starting to fire up some stuff on the Houston-DFW and Chicago-DFW routes too.

If air fares go up because of this next merger on a few markets, airlines *will* enter those routes because that is low hanging fruit and represents real profit.

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There is an anti-trust hearing on the US Airways / American Airlines merger and, as is common, Congressmen are voicing loud concerns about air fares rising and loss of hubs.  This does, at first glance, make them seem For The People but . . . are they?

I’m not a free market capitalist.  In fact, I’m pretty moderate in my views on business in general and regulation.  I think some regulation is extremely important.  I think the financial meltdown of 2008 is the most evidence that anyone needs for a decade or two.

It is ironic that I find this merger more satisfying on what is going on with this merger.  In previous mergers, it really was clear that certain hubs would be downgraded to focus cities at best.  For instance, the close proximity of hubs in Memphis, Cincinatti and Atlanta made it pretty certain that Memphis and Cincinatti would be sacrificed for Atlanta no matter what Richard Anderson told Congressional committees.   I think the same ultimate outcome is quite likely for Cleveland in the United / Continental merger.

In this merger . . . I can’t see hubs going away.  Assumptions being made about Miami being superior, potentially, to Charlotte causes me to laugh.  Charlotte is a far more strategically important hub on the domestic front.  Miami is and will remain a gateway city for all destinations south.  If I question anything, I question how things will work out between Phoenix and Los Angeles.  While I believe both will remain much as they are in many respects, I’ll concede that things are murkier their.  I think Los Angeles becomes a gateway city and Phoenix becomes a domestic hub.  Much the same is true between Philadelphia, New York City and Washington D.C.

But, bottom line, I don’t see hubs getting reduced in this merger.

As for air fares rising?  Well, they may well go up some.  They may well not.  Here is the critical question in my mind:  Why are air fares that prevent airlines from earning a return on investment that is great enough to cover the cost of capital something we don’t want?  In other words, why might it be desirable for airlines to be market limited to air fares that don’t earn them enough profit to be a viable business over the long term?

Consolidation in the marketplace is largely due to the fact that we deregulated the market side of the airline industry but never deregulated the labor side of the industry.  Airlines needed more market power and then finally figured out how to do it effectively.

Let’s not bash airlines for raising air fares when the industry has lost Billions (with a “B”) of Dollars over the past decade.  Our response, ordinarily, would be if you’re losing money and your cost competitive, you need to raise your prices.

Air fares have gone up in areas where they were unprofitable.  Unprofitable city pair have moved into profitable territory in many cases.  That is as it should be.  Bargain basement fares designed to win market share instead of profit are probably gone for a long, long time.  It was nice while it was here but let’s not kid ourselves into believing that those kind of fares are what we deserve.

However, there are many markets and city-pairs that were earning excessive profits which are now experiencing real competition for the first time as a result of these mergers.  Those fares are going down as they should be.  One great example is American Airlines “owning” the DFW/NYC city pair and now . . . not so much.  They have some competition, fares have gone down and it is far more reasonable to fly that route than it has been in a long, long time.

Were I to respond to Congress about claims of higher air fares, I would say something like this:

“Absolutely air fares are going up as a result of this merger . . . in some markets.  And they should go up because we are not earning a business appropriate profit in those markets.

However, air fares are absolutely going down in other markets because you now are going to have very big, very powerful airlines that will need to compete hard on routes in order to support business growth.  We will experience more competition on more routes over time and higher yielding fares will go down as a result.

Businesses are in business to earn a fair and reasonable profit and let’s not vilify that intent.”

And let’s be cognizant of that last statement.  There are a lot of businesses who earn an unfair and unreasonable profit and even do so with massive government subsidies.  The oil industry is one that comes to mind with some companies earning profits that are greater than the GDP of some small nations.

The airline industry, on the other hand, really not only isn’t subsidized but is probably overtaxed in many ways.  In fact, I would seek to start a dialogue on the fact that despite economic benefit accruing to entire communities, only users are taxed and heavily so.  Airports, for instance, are public infrastructure that offer benefits yet we seek to fund them with taxes only on users.   Highways are public infrastructure too but we tax everyone, not just users, for them because the benefits accrue in many ways.

But the airline industry is most inept at making such arguments and generally resorts to a “crouch” position when dealing with most things.  When they do bow their backs at government, they often overplay their hands as well.  It’s an industry that could learn something from the oil business. . . or corn growers.

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A couple of days ago, US Airways CEO Doug Parker and US Airways EVP Elise Eberwein went to go talk to a join meeting of the Allied Pilots Association (AA pilots) and US Allied Pilots Association (US Airways pilots).  They attempted to address concerns and foster a new relationship that would see a smoother merger get executed.

Let’s take a moment and think about this.  The soon to be CEO of American Airlines Group and a trusted US Airways executive in charge of People traveled to answer questions and address concerns to unions that will be involved with the new company.

Do you think that move would have been made by an American Airlines team?  For instance, do you think anyone bothered to go talk to TWA unions when AA bought them as an asset sale?  Do you suppose that Don Carty went and talked to the Reno Air people when they got bought?

You didn’t even see these kind of overtures being made when American Airlines needed a deal to stay out of bankruptcy just  a little over a year ago.  I would imagine that the pilots from American Airlines may have had a slightly stunned look on their face.

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The US Airways / American Airlines merger should inspire Southwest Airlines to search for opportunity in this union.  Southwest’s ability to do business in the Dallas Fort Worth area has been constrained by American Airlines for more than 20 years.

The argument that Southwest has rid itself of the Wright Amendment at Love Field may come to mind, I would argue that they remain fairly constrained at Love Field and particularly so when compared to other high density metropolitan areas such as Chicago.

For instance, the maximum number of gates at Love Field were reduced from 32 to 20 and Southwest is limited to using just 16 of those gates.  The other 4 go to SuperLegacy airlines (of which American Airlines is one.)  Furthermore, if Southwest were to introduce any services at DFW airport, it would lose gates at Love Field.

It’s a deal with the devil that got made because of political considerations instead of reality.  I wouldn’t criticize Southwest for making the deal but I would urge that the deal be revisited at this point.

Frankly, I would urge that Southwest being penalized for instantiating services at DFW be changed.  The truth is that Southwest has been boxed into this area for decades and while a successful strategy for Southwest, it has impacted competition in the DFW area.  American Airlines owns DFW as an airport like few hubs are.

Southwest is now seeing competition from both ULCC carriers such as Spirit and SuperLegacy such as American Airlines.  It fills a niche that more would like to enjoy.  But the idea that people in Fort Worth avail themselves of Love Field for Southwest fares is a bit amusing to me at this point.  They just don’t.

The legacy airline playing field will be leveled with this latest merger.  In fact, 4 airlines will dominate the landscape when it is completed:

• Delta Airlines
• United Airlines
• American Airlines
• Southwest Airlines

I think it’s time we stop listening to the economic arguments made by the first 3 now that they all enjoy costs that are as low or lower than Southwest.  Instead, let’s start promoting competition between those airlines like we never have before.

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I’ve been reading the news accounts of the merger announcement this morning and so far I haven’t seen anyone acting luke warm over this announcement.  The usual spin is going on about hubs being maintained (probably true) and jobs being preserved (probably not as true, at least with respect to jobs in corporate or support roles) and how excellent everyone is.

One item I’ve noticed:  Tom Horton seems to always refer to Doug Parker as “my good friend”.  So much that I wonder if the knife is going to sink slowly or quickly into Parker’s back.  It’s overdone.

Top Level Summary:

The Pilots:  Yea!

The Flight Attendants:  Yea! (AA at least)

Other service labor:  yea!

They expect the deal to be worth about $11 Billion and it will require regulatory approval and bankruptcy court approval.  It’s expected that it will take about 6 months to close the deal formally.

Tom Horton stays as non-executive chairman temporarily until around May 2014.  Then Doug Parker takes over and the board member count drops from 12 to 11.  AMR gets 3 board members, US Airways gets 4 board members and the balance come from creditors.

This isn’t a merger of equals.  While it is a merger, it’s a merger where the little guy swallows the big guy.  The advantage in this merger is that the little guy knows the big guy’s business and culture pretty well.

Now, with the deal made, there is a lot of work to be done not just in integration but in planning where to use the large numbers of new aircraft due in from both Airbus and Boeing.

There has been a lot of focus on this merger but curiously no one has noticed the potential effect on another Texas airline:  Southwest.  I’ll be writing more about that soon.

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US Airways and American Airlines will merge and the announcement will be made early tomorrow morning.  Doug Parker will be CEO and Tom Horton will be non-executive chairman of the board.

We like that they are merging but we don’t like Tom Horton’s presence in this because even a non-executive chairman wields influence and is able to engage in second guessing a CEO.  Doug Parker will be doing things very differently in this airline and that’s liable to create opportunities to sow dissent.

This will create the world’s largest airline but it won’t be the world’s strongest.  There is a lot of work to be done to be that airline and Delta CEO Richard Anderson is unlikely to make it easy for anyone to topple his airline.

More updates later.

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Now the latest news has Tom Horton holding a non-executive chairman of the board position until some time in 2014 (that’s more a compromise than I expected) and Doug Parker assuming that role afterwards.

The company is expected to be valued at $10.5 to $11 Billion with about $3 Billion of that credited to US Airways.  The boards of each company are expected to meet mid–week and I expect an announcement on Thursday morning by my best guess.

It should be interesting to see how much the smile on Tom Horton’s face is strained and whether or not he takes credit for the merger.

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Digging into news items more today, I have found more explanation for this desire to have Tom Horton remain as Chairman of American Airlines.

Apparently it is the American Airlines Board of Directors who are pushing for this and some even for an executive chairmanship and in the interests of “protecting” the board on the promises of revenue synergies being promised from the merger.

What’s interesting to me is that the board, largely unchanged over the last year, wasn’t pushing for this kind of conservatorship more than a year ago.

Questions I would ask are these:

1. Why is Doug Parker’s track record of return on investment at US Airways inferior to Tom Horton’s track record given the profits that Parker and his team have realized with an inferior airline network?
2. Why is it preferential to put controls on Doug Parker in this merger that we wouldn’t, for instance, put on Tom Horton himself in a stand alone exit from bankruptcy?
3. Why are AA’s interests valued so highly in this merger and US Airways interests so low?
4. As an unsecured creditor, would I not want to see the management team in charge be the people who have the best chance for success in the marketplace and who do return shareholder value since my “payback” will largely be in the form of an equity stake in the company?
5. And, if #4 is true, why would I want to constrain that with leadership that while fiscally good has ignored the revenue picture for 10 years or more?

I sense overreaching by the board and when I consider the composition of AA’s board of director’s, I think I know why.  AA’s board is dominated by financial interests who favor conservation of capital in all situations.  They are one of the most conservative boards you could find on an airline and most independent directors lack direct airline experience.

US Airways board is very different.  It is seeded with airline experience, entrepreneurial experience and is generally more diverse both in geography as well as industry.

Again, let me point out that Doug Parker is no fool.  He has an excellent education and has had excellent multi-airline experience which was founded on a long stint in finance at American Airlines itself and has since managed America West/US Airways for a 12 year tenure with great success in returning a disadvantaged airline organization to health despite severe industry economic challenges and ever increasing competition from very large SuperLegacy airlines.  that’s the guy you bet on and that’s the guy you don’t hamstring.

If Doug Parker or his team were foolish, unwise or inexperienced, they would not have achieved consistent successful results that largely outshine the rest of the industry.

And I would remind AA’s Board of Director’s that they chose to ride the Gerard Arpey horse and they chose to ride the similar legacy in Tom Horton with the results of a company entering into bankruptcy because of an inability to lead and an inability to generate increasing revenues.  The strategy was waiting for other airlines’ costs to rise and meet their own.  What makes you think your entity is so much more valuable today than it was 14 months ago?

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Terry Maxon with the Dallas Morning News is reporting on the Aviation Blog there that the solid rumour is that Tom Horton will be non-executive Chairman and Doug Parker will be CEO of a merged US Airways and American Airlines.

Since Terry rarely gets things wrong, I believe that this is the almost certain outcome.

It’s likely that I will take flak for this but I don’t like it as an idea. Tom Horton as non-executive chairman would have seemed like a good compromise last May or even last July. Not now.

Horton & Company have clung too hard to their ideas and I fear that even as non-executive Chairman, he’ll wield too much influence if only by being able to second guess Doug Parker and his team.

Let’s not forget that, according to Horton, Tom Horton was the guy to think of a merger long before Parker.

And then there is the branding fiasco and multiple superfluous announcements about change, often scheduled to take place in 2017 or later.

Sorry but I think Horton interferes and prevents success more than he helps. And the Board of Directors as well as the unsecured creditors would be wise to find another non-executive Chairman before letting this happen. Ask Gordon Bethune to do it. Ask Doug Steenland to do it. Ask someone else.

In fact, I think that finding someone else to serve as non-executive chairman could be the very best thing for this company. I really do. But Tom Horton should not be the one to serve in that role. He’s a lightening bolt for controversy among employees and a potential critic of Doug Parker as he sets off to do something very, very hard in the best of circumstances.

Let me point out that if it is about wanting to reward Horton for something, there is nothing preventing the company from awarding him stock and/or options in this deal. Nothing really. Horton will work again, too. He is a very, very talented finance guy and there are companies who need his skills.

It will be much cheaper to bribe him away from this than it will be to have him hovering over Doug Parker and trying to wait in the wings hoping Parker will fail and he can take control again. Seriously, don’t do this. It hurts the chances of the merged company and at best it doesn’t help.

Filed under: Airline News, Mergers and Bankruptcy by ajax
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