US Airways announced that they had bought a small amount of American Airlines holding company AMR’s debt.  They purchased $1 million in debt for $600,000.  This enables US Airways to have status as a creditor of AMR in court and, potentially, gain more insight into AA’s bankruptcy strategy.

It gives US Airways a seat at the table in a more formal sense and is enough to be taken seriously without being so much as to alarm the markets.

But AMR couldn’t resist speaking out against it.  American Airline’s spokesman told the Dallas Morning News that it was a publicity stunt and nothing more.  I would suggest that American Airlines play that publicity game very, very carefully.  Ridiculing a suitor and the only viable suitor for a merger and while you are under bankruptcy protection with creditors who already aren’t sure you’re acting in their interests or your own, seems foolish.

Acting snide can have the effect of making the financial markets and creditors think you’re behaving above your position in this bankruptcy.  While it is a company who is in bankruptcy and it is other companies who are the creditors (with the exception of large labor groups), the people participating in this process are all human beings.  Human beings are capable of being offended or annoyed and those human beings control the destiny of American Airlines in large part.

Filed under: Airline News by ajax
No Comments »

It is being reported that American Airlines is now considering 5 merger partners and they are US Airways Group Inc., JetBlue Airways Corp, Alaska Air Group, Republic Airways’ Frontier Airlines, and Virgin America.   There  are interesting choices here but at the same time one can see a less than enthusiastic theme here.

Alaska Airlines is a great airline and has a great operation on the West Coast of the United States.  That said, be 100% sure that Delta isn’t about to let Alaska Airlines get away without a fight.  I would rate this opportunity rather low.

JetBlue is another interesting option in that it would bolster American Airlines in its cornerstone market strategy as it applies to New York City with its operations centered on JFK.  I think that JetBlue is rather stagnant and while it offers market share, there is nothing else here to be gained and given AA’s history of buying airlines and then not knowing exactly what to do with them. . . this merger could happen but it adds little value to AA overall and certainly doesn’t bring American Airlines back into United and Delta’s scale.  All it does is leave existing AA management in control of AA.

Frontier and/or Virgin America?  No value added here.  There is no great complementary system found here, the management of either airline isn’t doing very well and the most that happens is that AA eliminates a tiny bit of competition on some profitable mainline routes.   These are red herrings in my opinion and I think there is very little probability of a real merger with either of these airlines.

US Airways:  Enough said already.  There are complementary systems, there are good executives who know how to make money and there is enough scale to compete effectively with United and Delta.   It’s interesting to me that US Airways’ Doug Parker says that he still hasn’t been contacted by anyone with American Airlines.  This is the least attractive merger path for AA executives and, yet, the one that makes the most sense.

I think the intent in leaking these potential merger partners to the press is to appear to be doing something about examining all options while focusing all the real effort and work on a stand-alone emergence from bankruptcy.  While that gives people like Tom Horton a chance to realize extremely beneficial financial rewards and an opportunity to keep their jobs, I’m not sure that it means that US Airways can’t be the dominant merger partner.

AA is almost certainly going to emerge with a higher market capitalization than US Airways presently has.  However, that doesn’t mean that they have very much maneuvering room against US Airways who has been building cash holdings and operating their business both profitably and sensibly.  AA’s current cash holdings are almost certainly going to be reduced in this bankruptcy and will be needed to finance both operations as well as aircraft purchases.   Furthermore, creditors and shareholders aren’t likely to be amused at the notion of using those cash holdings for a purchase of US Airways.

I would like to see a conversation about AA’s ability to be a dominant merger partner today.  This is an airline that has essentially dismantled every purchase and just made it go away.  Reno Air, TWA and Air California all were airlines purchased by American and removed from the competitive landscape without adding any real value from the purchase with the exception of some aircraft.  They were, for all intent and purpose, minor asset purchases.

Is that what creditors and shareholders want to see out of the next merger?  My guess is that won’t fly with anyone.

Filed under: Airline News by ajax
No Comments »

American Airlines CEO Tom Horton says the company is ready to explore merger options with all suitors now that the picture of AA’s health is more clear going forward.  Likely part of this is driven by the half steps it’s gained in negotiations with the unions and its greater certainty of what court rulings might be.

I’ve pondered this development and announcement since yesterday and wonder if Tom Horton isn’t going to make a play for a merger with US Airways that sees AA as the dominant carrier going forward.  The best defense is a good offense comes to mind.

Filed under: Airline News by ajax
No Comments »

Bloomberg Business Week says that American Airlines will be seeking an extension (90 days) to have an exclusive right to present a reorganization plan to the court.   This would nominally prevent US Airways from making its own proposal in late September.

It’s quite likely that this extension will be granted given what has been going on with the Section 1113 hearings in that a ruling on abrogating the union contracts has been extended to August.  The bankruptcy judge is likely to cooperate with American Airlines on this extension as it grants American the reasonable opportunity to put its plan together once it knows what its labor costs are likely to be.

Expect to see many unsecured creditors (unions in particular) object to this extension.

To a degree, this works in US Airways favor.  It allows them to make their case stronger with unsecured creditors and point to AA’s inability to get its house in order.

I think this a mistake on AA’s part as it signals that it is now reacting to US Airways instead of its own problems.  To creditors, directors on its board and others, this isn’t what you want to see in a bankruptcy.

Filed under: Airline News by ajax
No Comments »

Doug Parker of US Airways came to the DFW area with AA union leaders in tow to do media interviews in both Dallas and Fort Worth and make the case for a merger between US Airways and American Airlines. I have to believe that American Airlines executives would have liked to have arranged for his plane into DFW to be diverted.

So far, AA hasn’t reached any agreements with either the pilots or flight attendants. The pilots refused to send the last and best offer to its membership and we’re not surprised whatsoever. At the end of the day, even with the contracts abrogated, AA *still* has to come to terms with its unions and it’s doing a very poor job of that. Even the bankruptcy judge has pointed out that both parties will be stuck with each other.

There is a perception in these struggles that unions are always about more money. It is often portrayed as more, More, MORE on the part of airline unions and the thing is . . . it isn’t true. More money is rarely the true issue with employees.

We hear over and over again that more money doesn’t make for a more happy employee or a more productive employee. It’s quality of life that does so. The secret to Southwest’s success with its employees and productivity isn’t the high wages (although they are very high), it’s the cooperation that exists between company and unions that provides high quality of life.

Furthermore, employees really do want to see their companies succeed. Company success provides more stability than anything else for employees. So when American Airlines union leaders start talking about how they recognize that concessions will be fairly drastic no matter what the bankruptcy outcome and that their chief focus is now on company viability, don’t go thinking that is a smokescreen.

It isn’t. American’s biggest problem with its labor is not money. It’s a loss of confidence. That loss of confidence didn’t happen over night and it didn’t happen accidentally. There is little leadership at AA and that has been true since Gerard Arpey took over many years ago. AA executives are very, very good at managing certain aspects of an airline. They manage finances and fleets very well. They can apply the science in running an airline with the best of people out there.

What they haven’t been able to do is inspire employees and bring about both revolutionary and evolutionary change. They haven’t been able to get their labor to start marching together and working together to compete. That’s leadership and leadership isn’t accomplished by cutting management ranks and consolidating responsibilities. It’s about finding one Great CEO who then has to find many great managers to execute a vision and leadership.

Believe it or not, US Airways and Doug Parker do this. They do it despite big problems with their pilots and flight attendants. Despite the bickering that exists in those two labor groups alone, they still operate an airline that has improved its quality in every area and dramatically so. They get employees to cooperate and to excel at their jobs. Look at the fantastic job done in cleaning up the problems in Philadelphia, for instance.

AA unions see that and recognize what’s been lacking in their own company for a long time: leadership.

Filed under: Airline News by ajax
1 Comment »

US Airways CEO Doug Parker made a more detailed case for the US Airways / American Airlines merger they are pursuing at the annual US Airways shareholders meeting. Parker is in the position of having to denigrate the airline he wants to merge with somewhat in that he has to make a case that the stand-alone approach doesn’t bring profitability while the merger approach does.

Parker argues that the two airlines together can compete globally whereas the without US Airways, American Airlines doesn’t quite get there. The problem with that viewpoint is that he’s arguing scale at various point while also saying that US Airways doesn’t *need* a merger partner to continue its profitability. So why can’t American Airlines survive without US Airways?

The answer is that the two airlines both face long term profitability risk when facing Delta and United in the marketplace. US Airways *does* need a merger partner just as badly as American Airlines does. US Airways brings an executive team, a profitable operation and network that is complementary to American Airlines. AA brings scale to the table.

The labor issues still linger out there and while they aren’t as rosy as Parker makes them out to be for such a combined airline, they also aren’t as bad as some make them out to be as well. One thing US Airways has proven is that you can run a profitable airline with a fractured labor force. They’ve done it.

Labor unions, particularly pilots and flight attendants, have got to realize that their ability to survive is predicated on accepting new models of flying at the airlines. Preserving jobs is one mandate and that’s understandable. But all unions are going to have to accept the idea that preserving those jobs may require flying on smaller aircraft at vastly lower pay scales.

AA may do US Airways a favor in getting the labor contracts thrown out in court. If a merger goes through, a new contract could take several years to get negotiated into place while new, lower terms are imposed upon the unions which save the airlines money until that new contract is agreed upon. If the unions wants to realize salary improvements, they’ll have to cede some ground on productivity, health benefits and retirement funding. The sooner they do so, the sooner they realize real gains in overall compensation and particularly so on the US Airways side.

On a related note, the USAPA (US Airways pilots union) is now expressing moderated concern about a merger from their point of view. This isn’t surprising since AA pilots would dominate a combined airline from both a seniority and numbers perspective.

Filed under: Airline News by ajax
No Comments »

US Airways is approaching its desire to merge with American Airlines with much more strategic thought than its past attempts to merge. Their argument was made first with labor agreements with AA unions and now they’re talking about cost synergies.

There is a bit of optimistic in US Airways discussions. They present the rosy picture that is quite attractive. However, it’s no more rosy than the arguments that got made in other mergers over the past few years.

Synergies are available and they will occur. They never show up as fast as expected and complexities always drive change in those synergies after a merger has been made. That doesn’t mean they aren’t real and it doesn’t mean you can’t count on them. They are and you can.

This feels like phase 2 in the merger argument. First labor, second costs and I think we’ll next see an argument made on revenue opportunities.

Revenue improvements are what those who know the airline industry want to see in American Airlines. Costs are important but everyone knows those can get fixed in this bankruptcy. But without revenue improvements, AA’s bankruptcy won’t succeed.

Capacity restraint and a fairly stagnant airline market make analysts concerned that AA’s current plan for revenue growth is going to spur fights among airlines for market share. They’re not wrong. American Airlines wants to move more heavily into international flying and that means competing more heavily against Delta and United on destinations where AA is not only the underdog but finds itself in the position of having to fight for enough market share to fill an airplane enough to get a toe hold. That toe hold is going to come on the basis of price and significant drops in prices mean significant drops in revenue for all airlines involved.

One reason I like the US Airways / AA merger idea is that US Airways is strong in two regional areas of the United States where AA is weak. The southwest United States (not Texas, Texas is its own area) and the Southeast United States. US Airways offers an attractive hub in Phoenix that can serve Asia/Pacific destinations, South America and the entire West Coast of the United States.

Charlotte, North Carolina offers an entry into the Southeast that AA has never had. American does point to Miami in this argument but Miami is far more a “gateway city” than a hub. Charlotte isn’t Atlanta but it does offer convenient connections to the entire Southeast and that’s something AA doesn’t have today.

American has strength in the middle of the United States with Chicago (where it isn’t competing so well against United) and Dallas / Fort Worth. It has decent gateway city/focus cities in Los Angeles, Miami and New York City. Let’s not call them hubs because they aren’t being operated in quite that manner. AA’s core strengths are exactly in the areas where US Airways is weakest. That’s a good thing.

Philadelphia works well with AA’s focus in the Washington DC area and AA’s focus in Washington DC augments US Airways dominance as well. In fact, so well that I suspect that divesting slots in the DC area will be required before a merger takes place. In addition, US Airways has managed to compete effectively enough against Southwest Airlines in this part of the country and I think any management team that can do that deserves strong credit.

This is far from over. I still think we may hear a real merger announcement this month. The pressure is on AA and it isn’t going away. Their Section 1113 motions in court to break the union contracts only garnered them more unpopularity both in the public and within the industry. No one sees their moves with their union labor as being particularly good for a bankruptcy exit.

Filed under: Airline News by ajax
2 Comments »

There is a story making the rounds that US Airways and TPG may partner in a merger/acquisition of American Airlines and it’s got some legs. Some seem surprised by this and some seem impressed by this. I’m neither surprised nor impressed. It just makes sense.

US Airways probably could muster the cash necessary to buy off certain creditors and probably could use some of that rather large cash reserve that American Airlines is holding on to in order to pay off people too. But why not spread the risk?

TPG isn’t adverse to the airline world. It’s made good (and bad) investments in airlines and unlike most, has generally done very, very well. It’s Chairman, David Bonderman, continues to sit as non-executive Chairman and shareholder of Ryanair in Ireland. These guys know the airline business.

So why not partner up with them? This is a company that could provide excellent finance advice, access to relatively cheap capital and who doesn’t need to be educated on what makes a good airline. That’s just smart, good business.

Filed under: Airline News by ajax
2 Comments »

It’s not a catchy name, in that form.

Last Friday, AMR/American Airlines capitulated a bit in publicly stating it would engage in examining the possibility of a merger with some other airline.   This after beating a drum for 2 weeks that it was fine, there was nothing to see here and American Airlines was a better airline if it exited bankruptcy as a stand alone enterprise first.

The thing is, an airline in bankruptcy is answerable to many parties.  It must answer to the courts and creditors and it must justify its decisions, particularly those related to bankruptcy, at every turn.  There isn’t nearly as much maneuvering room to do what one wants to do in those conditions and I’ve often wondered over the past few months if that wasn’t the prime driver for Gerard Arpey’s decision to leave the company.

Is this a merger?  Nope, not yet.  But US Airways has played this very, very well so far.  They’ve got the public support of unions and have managed to make themselves look more and more attractive to interested parties who aren’t tied to AA through employment or as a major creditor.   The next steps will be to win over Boeing by reaffirming the aircraft orders made last year and to win over HP by reaffirming a desire to go forward with the new reservations systems.  Not hard to do as any merged entity will need both the new aircraft as well as the new reservations systems.

My prediction is that we’ll see some sort of understanding between the two airlines some time in June.  It will be about brotherhood and great synergies and that no one need to worry about their jobs.  Worst case scenario sees Tom Horton elevated to non-executive chairman (and I doubt that that happens) with a small handful of American executives retained.  More practically, Tom Horton leaves for a different industry and maybe 1 or 2 executives are retained for the new company.

The best part will be seeing the new livery for such a company.

Filed under: Airline News by ajax
No Comments »

American Airlines announced lie flat seats for its business class sections on 777-200ERs and 767-300ERs.  The changes are to start in 2014 and I yawn.  Part of this announcement made it clear that about half the 767 fleet will be retired going forward and it is easy to assume that means there is the expectation that the 787 will be rolling into the fleet.  I’ll yawn again.

I think American Airlines made this announcement, in part, to distract from its rather ugly look that it has in its bankruptcy proceedings.   Those US Airways announcement really put a hit on them and their hearings in New York regarding breaking the union contracts made them look worse.  So why not announce new seats that won’t show up for several years?

Am I the only one who thinks of The Emperor’s New Clothes when watching American Airlines these days?

Filed under: Airline News, Airline Seating by ajax
No Comments »

US Airways has announced new routes from its Philadelphia hub to Austin and San Antonio as well as adding a 6th frequency to DFW airport as well.  This is, without doubt, an attempt to put more pressure  on AA in its merger quest and demonstrate that the airline can satisfy travelers in Texas.

Consider that US Airways is pointing out that it already competes admirably on a trunk route like DFW to PHL.  This is an argument that service they provide is up to American Airlines passenger standard and exceeds them more than likely.

Putting direct flights in to San Antonio and Austin is also a statement that it intends to move into Texas and do well whether American Airlines wants to cooperate or not.  Those two cities provide an exceptional amount of “feed” into DFW and US Airways is going to try to poach that feed with direct, non-stop flights.

These are bold moves and designed to get the attention of American Airlines.  If AA responds with its normal “we’re not bothered” statement, I think they’ll find themselves subject to scrutiny from both creditors as well as its board of directors.  You can only ignore the elephant in the room for so long.

Filed under: Airline News by ajax
No Comments »

After a week of allowing the fallout from the US Airways agreements with American Airlines’ unions to settle, the question of what it will take to see an actual merger between the two airlines comes to mind.

It’s not just the union agreements that gets this deal done.  To the contrary, there are several issues that will have to see deals made.

Aircraft manufacturers:  Boeing wants to see an independent AA because AA is fundamentally a Boeing customer not withstanding the Airbus order made last summer.  Boeing is going to need reassurance that it remains viable in future aircraft orders and that existing orders won’t be cancelled.  US Airways can make those assurances with confidence.

Hewlett Packard:  Hewlett Packard sits on the creditors committee because of all the IT work it has done to date to bring AA into the future.  A lot is left undone and some reportedly isn’t really ready for prime time.   Currently, US Airways uses SHARES and American Airlines uses SABRE.  However, SHARES, originally developed by EDS, is now owned by HP.  Do you see where I’m going here?  A deal can be made to put both airlines on the new system being developed called JETSTREAM.

AA Executive Team / Board of Directors:  This is a sticky area.  Who wants a team or board that allowed the status quo to exist that long?   It’s possible we might see someone like Tom Horton retained as non-executive Chairman (a la Glenn Tilton) and a few of the existing AA team retained but that would be it.  The board has to go and its tenure is so high in average age, it has an incentive to fight this.  Solving these two problems is possible and these two stakeholders have the least power in making decisions in many respects.

The when is the next question.  US Airways is clearly getting good advice and it is clearly motivated to make a deal.  I would guess that their intent is to use their own cash holdings and AA’s cash holdings to make a deal that creditors can’t refuse.  I think that deal will happen between now and the end of June.

Filed under: Airline News by ajax
No Comments »

Boeing CEO James McNerney expressed his and Boeing’s viewpoint that they support American Airlines having an opportunity to exit their bankruptcy as a stand alone company.  McNerney acknowledges that US Airways hasn’t bought Boeing in a some time and sees AA as a loyal Boeing customer as well.

Is this support for AA an attempt to preserve the AA orders for Boeing 737MAX aircraft?  At least a little bit, yes.  In addition, Boeing has and continues to support AA’s purchases for aircraft in a variety of ways.  They’re a good customer.  Is that support founded on sheer love for the airline?  I suspect not.

In fact, any worry about the 737MAX is kind of silly.  The merged airline would, upon conclusion, have far more Boeing aircraft and far more resources to service and operate Boeing aircraft than Airbus aircraft.  Furthermore, both airlines have orders for Airbus A320NEO aircraft already.  Airlines of that size can no longer afford to be an exclusive customer of one manufacturer or another.  Their size (and the size of several competitors) demand manufacturing positions that can’t be serviced exclusively by one manufacturer.

I suspect that if Doug Parker is able to re-assure Boeing over its existing AA orders, Boeing will go neutral or even supportive of such a merger.  At the end of the day, it’s about having a customer and earning money.  Furthermore, it even gives Boeing an “in” with the US Airways executive team that it has not had for some time.

Filed under: Airline News by ajax
No Comments »

Since Friday’s announcement that US Airways has the support of American Airlines’ three largest unions for a merger between the two airlines, quite a few people have weighed in on the prospect.  Those objecting are just about every political leader in Texas.  Senators, Representatives, mayors and even chambers of commerce are all voicing their preference that American Airlines exit bankruptcy and *then* engage in a merger if it is so desired.  So, what’s the objection?

Like virtually everything else, money.  Each of those constituent parties benefits a great deal politically and financially from American Airlines.  American Airlines knows how to spread the money around to get what they want in this state and nationally.  There is a reason why it took years to rid the DFW metroplex of the Wright Amendment restrictions and even when they were struck, they were done on a timeline that benefited American Airlines, not Southwest Airlines.  Even then, Southwest Airlines is forever constrained to use Love Field because if it takes a gate at DFW Airport, it has to give up a gate at Love Field.

US Airways is a political unknown to Texas and the politicians know that if a merger between the two is consummated today, it’s US Airways leadership who will control the airline and whoever controls the airline, controls the dollars.

The problem is, US Airways has already laid out a fairly compelling case for the merger.  It has support from labor and it has identified the key problem that market analysts have been worried about with respect to American Airlines’ cornerstone strategy that it continues to cling to.  Half or more of AA’s problems are on the revenue side, not labor cost side and the strategy to improve the revenue side seems to involve flying more and charging less (as a function of draconian labor cost cuts) to get more market share.  We saw how that works in the US airline industry for 30 years.  We’ve also seen how capacity discipline can really work well even in a market that is heavily impacted by a bad economy.

In addition to making a compelling case, I have to wonder what anyone is afraid of here?  Fewer job cuts, more synergies, more revenue, a more diverse fleet and a company that stays in Texas and maintains a massive hub at DFW airport.  There is no reason to argue against that unless it potentially means you don’t get what you’ve been getting.

Furthermore, the executive leadership at AA is plugged into the community.  It’s hard to advocate on behalf of a merger that fundamentally sees your friends lose their jobs.

The preference expressed by these political entities is that AA gets through bankruptcy and especially benefits from huge labor cost cuts that enables it to be the consumer rather than be consumed.  How does that happen?  Let’s not forget that AA sits on massive cash holdings that if it preserves them well, they suddenly have positive cash flow, profits and cash holdings to buy an airline instead of being bought.

The problem with that scenario is that there is only one constituent group that really believes that AA comes out of bankruptcy strong enough to compete against Delta and United with positive cash flow:   The American Airlines executive team.  The rest of us see AA coming out of bankruptcy able to maintain the status quo for several years longer because until you fix the revenue side of the business, you are fighting a holding action against Delta and United at best.

Filed under: Airline News by ajax
No Comments »

American Airlines’ response to the announcement of a merger support agreement between US Airways and AA unions is, to say the least, lackluster.  If anything, I actually read a hint of bully in the announcement.  It says:

“American Airlines is moving steadily through the Court supervised restructuring process and the Court has granted American the exclusive right to create its plan of reorganization at least until September 28, 2012. We are making substantial progress in our efforts to return American to industry leadership, profitability and growth and maximize its value for all of its stakeholders.”Our immediate next step is to pursue vital modifications to our collective bargaining agreements through the 1113 process that begins on Monday, April 23rd. We believe statements of non-binding support from union leaders for alternative proposals are no coincidence given the timing of the 1113 process. These statements do not in any way alter the company’s commitment to pursue our business plan or our focus on moving steadily through the court supervised restructuring process to create a profitable, growing industry leader.

“For American’s outstanding employees and loyal customers, business continues on track, as we continue to provide the safe, reliable travel experience our customers expect.”

This, I believe, is non-productive when having to deal not only with your 3 largest unions but unions who have a significant amount of input on your unsecured creditors committee.  It also demonstrates that you don’t “get it” when it comes to your labor and the need to lead them through this bankruptcy.

Filed under: Airline News by ajax
No Comments »

US Airways has gained the support of the three leading unions of American Airlines for a merger between US Airways and American Airlines.  The Allied Pilots Association, Association of Professional Flight Attendants and Transport Workers Union have made a joint announcement supporting US Airways in its announced pursuit of a merger with American Airlines.

That cracking sound you hear is Tom Horton & Company’s headaches which just got much worse.

It’s not a merger announcement.  It is, however, US Airways going public with its pursuit and doing so in a very credible manner.  The concerns for American Airlines over this are that gaining this support in such a public manner and aligning it with the desires of Wall Street make for a lot of momentum.

There will be criticisms of the merger idea between the two airlines.  As with all mergers, there are pros and cons.  In this case, I think the pros certainly outweigh the cons.

The American Airlines board of directors will now be feeling quite a bit of heat.  In order to preserve the positions of the stakeholders they represent, it may become necessary for them to find some enthusiasm for a merger versus going it alone.   The truth is, the board and the executive team can express their wishes all they want.  Complete control over their destiny was lost the day they filed for reorganization.  I suspect that not only the unions but many other creditors are going to prefer the merger over a “stand alone” vision as time passes.

The cornerstone strategy and alliance strategy promoted by American Airlines just lacked real credibility in the face of the market.  Furthermore, the growth strategy for those cornerstone cities really alarmed many people who watch this industry as it held the promise of losing capacity discipline in the industry.  AA essentially said it was going after market share.

A few things I’m not entirely keen on in these announcements.  The keeping of the American Airlines name *might* be a good idea but I’m not sure I would entirely commit to that at this point.  The marketing image of AA is very staid and old.  A fresher name and/or approach is in order.   I would urge the players in this to clean house in the executive suite at headquarters, finally they hired maid from mythicalmaids.com chinatown home cleaners. AA has many valuable assets and many valuable people but the leadership needs to go and the sooner the better.

It suddenly has gotten very interesting for American Airlines and I would imagine that we may well see some announcements from AA over the next few days or even “leaks” that try to strongly discredit this merger idea.  Let’s face it, getting consumed by US Airways, even if the name and HQ are kept, isn’t exactly easy to swallow for many who lead AA.

Filed under: Airline News by ajax
No Comments »

I’ve had a few people asking about why American Airlines unions would be interested in US Airways at all.  It’s a fair question and one that I touched upon last week.   There is a simple answer:

Seniority

American Airlines’ unions and, specifically, the APA, APFA and TWU who are on the unsecured creditors committee of AA’s bankruptcy all are made up of very senior people.  Senior even for the airline industry.  Way, way senior.

Their perception is that in a merger, more of their membership will survive a seniority integration against members of similar unions representing US Airways East and US Airways West employees.  In fact, it’s the former America West aka US Airways West employees who likely fare the worst in such a merger.  Oddly enough, they’re also the most “successful” and “productive” of the three potential groups.

Furthermore, allowing US Airways merger talk to continue in the media keeps the heat on American Airlines management during the bankruptcy.  It’s leverage, plain and simple.   From the perspective of the AA unions, they have really nothing to lose at this point in exercising that leverage.

Filed under: Airline News by ajax
No Comments »

Respected airline consultant and research engineer Bill Swelbar has recently taken a swipe at the idea of a merger between US Airways and American Airlines in a blog post.  Swelbar suggests there may be more benefits to a full integration between AA and JetBlue and Alaska Airlines who just as adequately (if not more adequately) cover areas where American is weak (the West and East Coasts).

Swelbar is factual and correct about AA’s weaknesses in these areas with respect to its network and market shares.  He’s also correct in that those two smaller airlines do operate in the weakest portions of American’s network.

I see significant problems for that kind of approach.  First, Alaska Airlines is increasingly under the influence of Delta Airlines these days and enough so that I do not think it can afford to ignore Delta’s desires entirely and Delta would like competition to go away.  Second, JetBlue already has some agreements in place with American Airlines that do bring a benefit but it also has little incentive to cooperate with American Airlines as AA doesn’t bring much to the table for JetBlue.

Both Alaska and JetBlue are working hard to be all things to all carriers in the form of interlining, codeshares and alliance agreements and that works for both airlines very, very well.  Alaska works at this from a domestic perspective and JetBlue plays more on the international side of things but they’re both pursuing the same strategy and it’s a strategy that works well for both.  Why give up success for the risk of fully integrating with AA and under AA’s management?  If I’m a shareholder for either airline, I don’t like the idea.

Furthermore, at this point, this isn’t about what AA leadership wants.  It is already rapidly becoming much more about what AA’s creditors want and what their shareholders want.  And what they want is performance.

A marriage with US Airways can be disrespected over and over but there are two exceptionally important things to be mindful of.  US Airways knows how to run an airline well and earn money despite labor issues.  They also know American’s business pretty well and they’ve got an established track record that didn’t exist in the same form back when they made a bid for Delta.  Creditors will listen to them carefully today.

US Airways also has the strengths that are complimentary to AA’s network.  They aren’t the most optimal strengths but they are one hell of a lot better than American Airlines standing alone.  Philadelphia, Phoenix and Charlotte are very complimentary to AA’s strengths.  No, there isn’t much overlap that would result in “synergies”.  I would argue that the so called “synergies” of reducing capacity via a merger are harder to obtain than generally appreciated, overvalued and largely non-existent today as a result of consolidation and capacity restraint that has gone on for the past 4 years.

New mergers will benefit from scale and operational expertise.  They’ll benefit from having a more diverse fleet that permits “right size” flying on routes.  They’ll benefit from international alliances.

There is a great example for that last part.  US Airways is now the awkward partner in the Star Alliance with United filling that role on a far greater scale within the United States than US Airways does.  US Airways could benefit a great deal more from Oneworld than it does Star at this point and a merger with American makes Oneworld very competitive in the United States again.  A great reason for Oneworld partners to stand aside and look at these issues with less emotion and more reason.

Filed under: Airline News by ajax
No Comments »

There is an internal letter from within American Airlines being circulated on various news sites written by John Hale, American Airlines chief pilot.  This letter casts doubt that AA pilots would support the idea of a merger between American Airlines and US Airways.

First and foremost, I don’t know how much credibility I can give the characterizations in the letter since it does, after all, come from the one pilot in American Airlines with a strong incentive to calm concerns coming from the American Airlines executive team.  He is answerable to them much more than his fellow pilots in the job he holds.

Second, I don’t think pilots like any mergers really.  The seniority issues are very stressing.  But in this case, I don’t know that AA pilots have quite as much to fear as in many mergers.  AA pilots are much more senior than US Airways pilots in general.  Furthermore, US Airways pilots don’t have seniority integration and new contract.  But if there were a merger, the pilots who are divided at US Airways are vastly outnumbered by AA pilots in sheer quantities.  With quantity comes power.

Third, I think executives and other parties are quite afraid of Doug Parker.  It’s obvious that the AA executive team would prefer to be the leads in any merger.  It’s also obvious that they aren’t in a good position to make that demand.  Doug Parker and his team make a very strong operational team and that alone speaks to opportunity from such a merger.  They should be afraid of him:  He knows how to run an airline in today’s environment.

And the AA executive team should be afraid of US Airways.  They’ve learned from other mistakes, they have cash and they have a track record for running an airline that is disadvantaged compared to other legacy airlines and with a fractured labor group.  US Airways makes money *despite* having two pilots groups and two flight attendant groups.  They can manage new parties in that mix.

Filed under: Airline News by ajax
No Comments »

US Airways (East and West) flight attendants have turned down a contract offer made by US Airways by a margin of as much as 75%.  Both unions think the airline needs to reward their sacrifices made during earlier bankruptcies more.

It’s a contentious problem and one that US Airways needs to start getting addressed.  They continue to have two unions each for both the Flight Attendants and Pilots of the airline more than 5 years after the America West / US Airways merger.  Addressing dual leadership on contracts is a risky move and they need to see the unions, well, unify and show consolidated leadership as well as come to an agreement on a seniority list merge.

Seniority lists that aren’t merged are going to focus the labor of each former airline on what they can get and what they’ve given up.  They won’t speak with one voice and they realize that a new contract may reward some much more than others if the seniority lists aren’t merged fairly.

These unions have, if anything, demonstrated their inability to get on the same page.  To a large degree, this has been to the advantage of US Airways but it’s time to get it solved.  Getting it solved isn’t going to happen by standing on the sidelines and waiting for these parties to make nice with each other.  The airline needs to offer some financial incentives to get the unions merged together and on one seniority list.  Incentives that diminish over time and that reward fast action.

US Airways needs to show that it can manage its labor harmoniously as well as every other area of its operations.  Especially so if it wants to be considered a viable merger partner for American Airlines.

Filed under: Airline News by ajax
No Comments »