At this point, we hear of Delta, TPG and US Airways all doing their work on investigating an acquisition and/or merger of American Airlines.   While many think Delta is credible with significant carve outs of the AA system, I do not.   It isn’t just about competition on routes, it’s about size becoming so much larger that pricing power comes along with it in the markets.  A realistic combination of Delta and AA would realize a company that is 1.5 times larger than the next largest airline and massively larger than virtually any other airline in the world.  That kind of dominance can influence much more than just the price on a particular route and I don’t think the US government or the EU is interested in seeing that kind of pricing power.

As for TPG, I think they’ll play things very close to the vest and keep their intentions unknown until the last possible moment.  I do think we’ll see them look for partners in such an acquisition.  I also think that TPG might do what’s best for the company in the sense that they’ll oust management and directors who have long term tenure and who aren’t advocating for change and new leadership.   American needs more revolution than evolution and I think TPG knows that.

US Airways has the best management team for American Airlines, in my opinion.  That team knows how to fix things operationally and knows how to extract profits and revenue from sub-par conditions.  That said, I think the prospect of merging those two companies given the labor problems on both sides is a bit daunting.  Such an integration needs to be able to take full benefit from all the synergies a merger offers and having not one, not two but three pilot groups at odds with each other would not be healthy.  The same would be true for flight attendants.  I struggle to imagine how even the US Airways team makes that work well.

At the end of the day, I think every party will move slowly and wait to see how things develop with American Airlines.  What they win in terms of concessions in bankruptcy will determine just how attractive an acquisiton they may be.  Right now, I continue to think that the most likely outcome is American Airlines as a stand-alone company.  Why?  The cash holdings they have allow everyone to maintain the status quo at this moment.  AA has no need to go to anyone hat in hand to ask for DIP financing.

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