Thursday, May 24, 2012

AMR bankruptcy: Analysts see US Airways merger as American's next step

By JOHN STANCAVAGE Tulsa World Business Editor

Published: 5/20/2012 2:38 AM

Last Modified: 5/21/2012 6:42 PM

American Airlines steadfastly resisted filing bankruptcy for a decade before finally succumbing last November. Is a merger the next inevitable step for the fiercely independent airline?

Several industry analysts think so, but leaders at parent AMR Corp. are sticking with a wait-and-see outlook.

Undoubtedly, financial officers at many airlines are running the numbers to see what a combination with their particular carrier would produce.

The possible merger partner that has received the most attention so far is US Airways, mainly because its CEO, Doug Parker, won't stop talking about American.

In a move that some observers call unprecedented, Parker already has cozied up to American's three major unions, offering a rough version of what a contract with his airline would look like. The terms are attractive enough that American's pilots, flight attendants and mechanics have said they'd support joining with US Airways.

"Doug Parker wants to conquer the world," said Bob Herbst, founder of "Right now he wants American Airlines. All his comments in the press are because he wants everyone to know he's ready to make a deal."

Herbst, who was a commercial airline pilot for 35 years, said he guesses there's a 95 percent chance US Airways will merge with American.

Other combinations have been rumored, but Herbst discounts them.

"Due to the size of United and Delta, there is no way the (government) would approve either of those airlines becoming larger with American assets," he said.

American, meanwhile, was the nation's No. 1 airline until 2007. But declining fortunes and consolidation in the industry changed that.

"Fresh out of their own bankruptcies, Delta and Northwest Airlines merged in October 2008, creating the largest airline in the world," Herbst explained. "Not to be left behind, in September 2010, United and Continental Airlines merged to become the biggest."

Suddenly, American was the third-largest airline.

A merger with US Airways would put American back on top, the consultant said.

"Without merging, both American and US Airways will face major challenges moving forward as they attempt to compete against Delta Air Lines and the merged United/Continental Airlines," he said.

'Makes the most sense'

Sterne Agee analyst Jeffrey Kauffman said he thinks US Airways has a "reasonable chance" of merging with American.

Seth Kaplan of Aviation Weekly said American's stand-alone business plan appears workable, although its smaller size could pose some issues.
"Some of American's projections may be a little too rosy, but then you could say the same about US Airways' plan," Kaplan said.

Mergers are complex, the Aviation Weekly analyst said, and can take years to gel. Along the way, there can be a "cost creep," he said.

"A merger between American and US Airways would not be perfect," Kaplan said. "But the question really is: Would it be better for the two airlines to do it or not? And the answer is that it would be better do it."

US Airways seems not to be too worried that it will have to update contracts with its existing union members, who are among the worst compensated in the industry. calculates it will cost US Airways about $600 million to bring its labor up to parity with American's.

Other bidders may emerge, Kauffman said, but US Airways' chances of being the successful bidder are helped considerably by its tentative agreements with American's unions, he said.

"A deal with US Airways is what makes the most sense for creditors," another analyst, Hunter Keay of Wolfe Trahan & Co., told Bloomberg News.

"It's always struck me as odd that AMR was completely unwilling to listen to US Airways because the offer is probably compelling and US Airways is a motivated buyer."

'On our own terms'

AMR seems determined to complete its bankruptcy before discussing deals.

Kevin Cox, vice president of state and community affairs for American, said in a February interview with the Tulsa World that American wants to present a single business plan to the court and emerge as a "strong independent" carrier.

If a merger offer appeared at that time and was attractive, "we would be able to do it on our own terms," Cox said.

In recent weeks, AMR has softened its position slightly, saying that it would be willing to explore strategic options - including a merger - in response to requests from the unsecured creditors committee.

The committee would have a key role in the process. American currently has until late September to present its reorganization plan to the court. For any other proposal to be considered before then, a majority of the unsecured creditors would have to petition the judge, who would have to approve bringing the option forward for consideration.

Herbst said there's a big reason AMR's top leaders don't want to entertain a deal while still in bankruptcy.

"If AMR does the merger during bankruptcy, it means a monumentally smaller payout to executives," he said.

Herbst also contends a combination would be costlier in general after bankruptcy because the acquirer would have to deal with the stock that had been created, new debt and airplane leases.

American Airlines officials scoff at the idea that CEO Thomas Horton and his team are being driven by personal greed, and say Herbst's analysis is off base. The top leaders have a fiduciary duty to act in the best interest of creditors while in court and later must answer to shareholders, according to this argument.

Forecast for Tulsa workers

What would a merger with US Airways look like for Tulsa?

American employs about 7,000 in Tulsa, including 5,000 mechanics and related groups. The airline's estimate was 2,100 mechanics cut in Tulsa, plus several hundred other employees.

Officials decreased the number of mechanics targeted by about 1,000 in a "final, best offer" that was rejected last week by the Transport Workers Union.

US Airways, in contrast, projects it would cut 450 jobs at the local maintenance center and do what it could to protect pay.

Perhaps the key issue is the long-term outlook. Would US Airways stick with a system that keeps maintenance heavily in-house? Would Tulsa continue to be a key asset? And what would happen at the next contract negotiation, with no ticking clock on a deal or other incentive to "win over" the union?

Herbst said American Airlines employees must decide which vision of the future allows the airline to make the most revenue. The more profitable American is, the greater success unions should have in arguing for their share.

Many of American's union members still look back wistfully at their pay and benefits prior to a concessionary contract signed in 2003. But in those headier days, American was No. 1 in the industry, and just as important, controlled the high-profit business travel market.

"American could charge premium prices in those days," Herbst said.

The airline's passenger fare yield premium started to deteriorate in the first half of 2010, according to figures from

A merger with US Airways might not only help American attract more business travel, but also the combo's sheer size would be formidable, the analyst said.

"Combining the revenues of American and US Airways would move the merged carriers to the top of the largest airline in the world list," Herbst said.
"History shows a long list of once-great airlines that failed. Each of those had one thing in common. They all failed to remain competitive. American and US Airways must merge to remain long-term competitive."

Advantages of an American Airlines-US Airways merger

Analysis by

$500 million to $700 million: Annual reduction in US Airways' core costs

$350 million to $450 million: Annual premium/business revenue increase.

10 percent to 20 percent: fuel expense reduction from newer jets currently on order for both airlines,

$1.8 billion to $2.5 billion: Total cost saving synergies within 12 months of merger.
Analysis by


Business bankruptcy Attorneys Chicago said...

Bankruptcy is the worst situation for a person or organization in its life time. In many case we can see that after filing bankruptcy one come up with good situation to start again but in many case one cant get up.

ahmad naeem Bhatti said...
click here

National institute is the largest leading chain of skill based hands-on line -training providers for Vast Rang of :-
v Air Line Ticketing,
v Cabin Crew Air Hostess
v Safety Officer/Engineer
v Seo Search Engine Optimization
v spoken English
v Hotel management.
v Call center training
v Web Development
v Technical Vocational
Training Courses Pakistan and All over the World. Its Educational Heritage Can Be Traced Since 2007. National Institute has always led the market by introducing latest market driven IT, linguistics and online Courses. National institute is a trusted name in the field of on line education and training having the largest chain of institutions in the on line worldwide. National institute has a large group of happy &satisfied students attaining successes in their future lives & prospects.

click here