Why Haven’t US Airways and American Announced a Merger?

Here we are at the end of January and a merger between US Airways and American still has not been announced. This is downright silly since just about every party agrees that it’s the right thing to do. So what’s up? Well, I say “just about” every party, because from what I can see, it’s American’s current management team that is the lone holdout. And it’s that stubborn stance that seems to be keeping the right thing from American Cries About Mergerhappening here.

Last week, Reuters put out a joke of an “exclusive” article saying that a merger between the two could come in the next two weeks. Why was it a joke? Apparently the airlines were in final negotiations with “the final price and management structure still to be resolved.” So the “only” two sticking points are the ones that have always been the issue. Maybe this was leaked to try and help build some more traction, but it didn’t really say anything new.

Now the latest “news” of the day is that American CEO Tom Horton may end up being the Chairman of the combined entities. There is some good and some bad to this kind of thing. The good is pretty simple to explain. If Horton is willing to settle for a Tilton-esque agreement where he can just sit in a fancy office and collect a huge paycheck for a couple of years, then that finally removes the last real barrier to a merger – the fight being put up by management.

On the other hand, if he insists on a more active role, then it’s a bad idea. There are very few supporters of Horton outside management ranks. Wall Street has been quite clear that Horton’s plans to date are unacceptable. In particular, the plan to grow the hubs by 20 percent is suicidal. As one analyst, Dan McKenzie, puts it, the growth plan “would be toxic for industry pricing and ruinous for shareholders….” The views throughout the financial community appear to echo that sentiment. If Horton has any kind of influence in the merged entity, then the money folks will not be happy. And that hurts the chances of the deal going through.

Other than Wall Street, we know the employees have lost all faith in the current management team. That happens to any leadership team that takes an airline through bankruptcy, as it should. That’s why it’s best to have a new team to take you out of bankruptcy. Delta did this well.

Delta Does Bankruptcy Right
When Jerry Grinstein took over at Delta, he started making deep cuts and then led the airline into bankruptcy. He wasn’t exactly hated since he was quite upfront with what had to happen and didn’t take excess compensation, but it was always meant to be a temporary job so there would be no residual friction. When he stepped down, the hard restructuring work had been done. Richard Anderson stepped in to lead the resurgence which included the Northwest merger. Today, Delta is the industry leader.

American could have a similar story if it wanted. Tom Horton has made a lot of necessary cuts that have angered people in order to get this airline in a position where it would even have a shot at competing. He should get credit for that, but now it’s time to step aside and let the people who know revenue take over. When you come out of bankruptcy, you need a new leadership team with a solid revenue plan that people can rally behind. Horton is clearly not the guy to lead that team.

When I talk about the leadership team, I think some people might picture US Airways management coming in and throwing American leaders out the window, but that’s not the case. There is clearly a need for American leaders to run a combined airline. The US Airways team has to know that. In fact, I bet there are people in high places at American who secretly want to see a new leadership team at the top, because it will provide more opportunity for them. This new leadership team needs to fill the key roles at the very top. The rest will be a mix of experience between the two sides.

Too Many Promises
Without a new team, what we get is a current leadership team with a highly questionable plan. The thought seems to be that if American promises enough bells and whistles, people will fly the airline. And it will need 20 percent more capacity to serve all this magical new demand. Not a good plan. First, the promises are lofty and expensive. Today is the first day that any passenger on American can experience those amenities with the introduction of the 777-300ER on the Dallas/Ft Worth to Sao Paulo route, but that is just one airplane. It will take years for the airline to consistently deliver a product that can live up to what is being promised. All this “new American” stuff including the new livery will result in the worst thing possible – overpromising and underdelivering for years to come.

But even then, does it make sense to put all of these amenities out there? Some, yes (like flat beds in biz, of course), but probably not all. It seems like the airline is going overboard with announcing its plans just to try to sway people who may have influence on whether a merger happens or not. If it doesn’t happen? With a 20 percent increase in capacity and no merger, the airline is not going to have the revenue base to support all these expensive promises anyway. (It may not have it afterwards either, which is why the promises should likely be scaled back.)

At this point, my assumption is that the only reason we haven’t seen the merger announced is because the current management team is fighting it. Everyone else seems to be in agreement that it’s the right way to go. If that’s true, then it will happen. There are a lot of great people at American and around the US who deserve just that. It will just take longer than it should. And there will be more pain involved in the process.

[Original child tantrum photo via Shutterstock]

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58 Comments on "Why Haven’t US Airways and American Announced a Merger?"

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Chris
Guest

Can the AMR board of directors not overrule the American management so that the deal can be done?

longtimeobserver
Member

The AMR Board has long been part of the problem. They’ve got to go, too.

Trent880
Guest

The cheese stands alone–everyone wants US management in control: the street, labor, even historical precedent–except for AMR management and probably the board.

nicholas.irving
Member

You can’t put on a new paint job or hire fancy uniform designers to make the process less painful…isn’t there something about makeup on a pig???

David SF eastbay
Member
Sounds like the AA top group is trying to save face or make them look good for any job they may want somewhere else one day. If they remain in control of a combined airline, it makes everyone think they are wonderful leaders and that one day some other company will pay big bucks to have them. But if they are not in control of the combined airlines, then it looks like it does, that they are crappy leaders that caused all this. Those at the very top never care about the company, only about how they look towards others… Read more »
Bill Hough
Guest

Exactly how are US and AA expected to integrate, given that US has not fully integrated HP, 8 years after that merger?

FT_Roy
Guest

If all else fails? M-B arbitration.

I can’t imagine the East pilots would be crazy enough to fight a second arbitrated list, but it’s not out of the realm of possibility… oh and they’ll be in the minority this time around.

noahkimmel
Member
I am not familiar with the “exact” specifics, nor can I predict the future. But I would propose something along these lines: 1) AA pilots are unified and numerous enough to be majority of combined carrier, thus being able to pick a single union for all 3 groups 2) (big assumption: union works for all pilots, not one group) Union establishes fences at major bases so each legacy seniority list applies in each base for a percentage of the most senior pilots. 3) For more junior people, an integration by date of hire 3) New pilots will come in “fresh”… Read more »
BravoNovember
Guest
I have always sensed your pro-US and anti-AA stance. Your bias from your past US associations ooze through your postings. I like both companies and still wish the best for US. It’s easier to just talk from the outside without having to feel any effects of the merger. There’s something that isn’t right about the way Doug Parker approached this whole merger. He looked to be licking his chops as soon as AA filed for Chapter 11 and ready to scavenge on a competitor who in other situations would have squashed his advances. AA was not in dire need to… Read more »
Hunter
Guest
I dunno…if I were a US employee, I’d be pretty happy with Parker since he is leading the airline to consistent profitability, job security, customer satisfaction, etc. You accuse CF of a bias, yet your post clearly paints the same about you. Characterizing Parker as licking his chops and making him a vulture? Seriously, it’s business. He saw an opportunity to capitalize on a weakness of a competitor and create something winning that will likely benefit more people over the long run. And, I don’t think anyone with a semblance of business sense could possibly believe that AA would have… Read more »
noahkimmel
Member

agree completely with Hunter. DP may seem slimy, but he has been very successful at HP and US

don’t forget, employees may not be pissed about the merger because US leadership is theoretically taking over. A larger airline means more planes to fly, more routes, more opportunity, (and if you believe Parker) more profit for everyone.

Sean S.
Guest

More opportunity? Depends on the way the seniority list breaks. Without knowing the seniority age of many of AMR’s pilots versus US Airways, a merger could potentially knock many pilots down a peg or two, with many of them not all that far away from the ultimate age out number. Depending on pension and retirement situations, some pilots may be looking at essentially the loss of everything. Faced with those circumstances you can expect many of them to be fairly militant about it.

doug
Member

Noah, the combined airline is going to have the same revenue as UAL and approximately 30,000 more employees. Do you really think there’s going to be more opportunities? Parker said there would be fewer layoffs with the merger. How’s that going to work out? So if he’s lying about the layoffs / opportunities do you think he’s telling the truth about the profits?

BravoNovember
Guest

@Hunter, I confess that I am biased. I also understand that it’s a business and AA put itself at a big disadvantage by filing for Chapter 11. I never said that AA would have survived without BK but only said that AA is not desperate for a merger. Chapter 11 was necessary and, in hindsight, had it been done a few years earlier, it could have come out of it without the preying eyes of DP on it.

yo
Guest

Parker did the impossible, got the USAirways part of the airline in PHL to make a profit..with the nastiest, surliest and laziest bunch of entitlement slugs ever to infest an airline. That Parker could make the airline such a success despite the union goons back east is a herculean task.

Tom Clayton
Guest
First of all, as a long time AA employee don’t be mislead that all employees want this merger to take place…..because WE DONT. USAirways has old planes, old routes, senior very unhappy employees. This merger only benefits USAirways. I can’t understand how the labor unions at AA want to get into bed with Doug Parker who has done nothing for the labor unions at USAirways…..going on 8 years with no contracts. Is that Parker’s way of creating profits? When the merger goes through, wouldn’t it be best to select a new CEO/President and a team of officers that are neither… Read more »
noahkimmel
Member

hahaha, fair.
Welcome to competitive business

qmwolfe
Member

Doug Parker can not force the pilots to agree to a seniority list. The pilots had binding arbitration that the east pilots refuse to accept. Doug Parker and the airline can not negotiate a new contract until the integration. I continue to hear people, internally and externally, bash Parker about not having contracts for 8 years. If the pilots really want a new contract, they should accept the binding arbitration that the agreed to.

Trent880
Guest

The pilot situation is completely out of DP’s hands. What I can’t wait to see is two pilot unions, who in the past have been so rabid they’re sociopathic, work out a seniority list. And beyond that, it’ll be interesting to see how the labor groups, who are *demanding* a merger now essentially, deal with the inevitable fallout when a good percentage of them are laid off. It’s going to be a nightmare.

yo
Guest

Every day I see AA’s junky old MadDogs coming in to PHX. AA’s planes are so old, Allegiant wouldn’t even fly them. Add in the ancient 767’s in AA’s fleet to that. US has been getting rid of all their old 737 300 and 400’s, replacing with new A319/320/321’s and phasing out 767’s with new A330’s and will be taking on A350’s.

Alex Hill
Member
AA has been taking delivery of new 737-800s for the last several years and now has more 737s than MD80s. They also have the largest order in the history of aviation in for something like 500 more 737s and A320 series aircraft (some current generation and some next generation); the first of those start to arrive this year. Their first brand new 777-300ER took its maiden revenue flight today, and they’ll have 787s coming in when Boeing sorts out the glitches and gets to AA’s delivery slots. Pretty hard to claim that’s an airline not working hard to renew its… Read more »
Eric A.
Member
IMHO there is more delusional thinking going on here than a Widespread Panic concert….and it’s on all sides. THo & Co. 20% growth plan sounds insane on the surface, but lets be realistic: this is a red herring to get Labor on board…period. No one wants to hear about static growth, or worse, more cuts…after the reorg. Then there is the US/Parker logic: as discussed ad nauseam, how in the h*ll are they going to overlay two systems when one of the systems is fractured. Add the US pilots fifth column and two key AA labor groups who’s loyalties change… Read more »
Sean S.
Guest
Like others have mentioned, it is not really a situation of there being any real logical outcome. Is US Airways effectively the only suitor out there? Yes. Does that make them an ideal one? No. While AMR’s order of Airbus planes will complement the fleet of US Airways, and their route networks overlap isn’t awful, its hard to see how taking on the relatively robust network of minor airports will help US Airways, who has often conciously avoided doing so nor AMR’s deteriorating situation in Miami. Could an independent AMR survive? Honestly thats expecting an uptick in traffic that is… Read more »
MeanMeosh
Guest
I’ll chime in as someone who’s not a fan of a potential US-AA merger. Not because I think the status quo is going to work long-term, but because I don’t particularly care for the US product, and despite Doug Parker’s claims to the contrary, I fully expect all those “synergies” to leave us with a product much more in line with current US than AA. But I digress, as I seriously doubt either Parker or Tom Horton particularly care (or for that matter, should care) what I think of their airlines. IMHO, while the management angle (i.e. AA management wants… Read more »
FT_Roy
Guest

If APA and USAPA can’t reach an agreement, welcome to binding arbitration. And if US East doesn’t like what comes of it, well then they can stay on LOA 93 – and if APA doesn’t like it, they can stay on LBFO2, I imagine – and I can’t imagine either group wanting to do that.

The pilots can work together or screw each other over, but that in itself wouldn’t stop a merger.

A
Guest
I’m generally not a fan of consolidation in the US airline biz. The only example that I can think of where the combined was better than the separate parts is Delta. Both DL and NW were pretty rough prior and have actually improved after. I used to love CO and would fly them whenever I could. Today even though CO’s management is controlling UA that merger has not been without teething problems. Prior merger I hated UA and some of that bad has creeped into what I thought was an excellent pre-merger CO. AA is an airline I’ve liked and… Read more »
Nick Barnard
Member

I’m curious if it is possible for Parker to do an end run around AA’s management and take their offer directly to the creditors. How likely is this to happen?

I find it funny that everyone blames management for the pilot union’s inability to provide a single seniority list. AFAIK, US Airways filed a court case asking the court for direction as the union put the company in the position of either violating the East pilots rights or the West pilots rights.. The pilots have created a bloody mess for themselves.

Hunter
Guest

In BK that’s determined by the court. While Parker can certainly make a case to creditors, he can’t do an end run around as long as AA maintains the exclusive right to file its reorg plan. Now, the creditors can cause a stink, reject the plan and ask the court to allow them to present a plan. That’s when things get really messy.

MeanMeosh
Guest
“I find it funny that everyone blames management for the pilot union?s inability to provide a single seniority list. AFAIK, US Airways filed a court case asking the court for direction as the union put the company in the position of either violating the East pilots rights or the West pilots rights.. The pilots have created a bloody mess for themselves.” And that’s my point exactly. Regardless of the merits of an AA-US merger, or the managerial skills of Doug Parker, how’s it ever going to work out if you’ve got a band of pilots (actually, two in this case,… Read more »
Ben
Guest
The AA pilots aren’t generally unhappy, they are just unhappy with the current AA executive team. I believe the they will (as a group) be largely supportive of a combined airline which is run primarily by US’s management team. They really would have no reason to continue to be upset since most if not all of the senior management that they feel wronged them would be out. As for the US side of things, there is a lot to be said. First off, the underlying situation that seems to have caused all of the East/West turmoil is somewhat, though not… Read more »
doug
Member
“The AA pilots aren?t generally unhappy, they are just unhappy with the current AA executive team.” Really, they’ve been unhappy with every executive team for the past 20 years. When I worked at AA in the 90’s they called Crandall “Darth Vader”, and stood up en masse during his President’s conference and walked out in protest over some perceived slight. What makes you think they won’t be pissed off at Parker within a year or two when the layoffs start? And you have lot more faith in pilots acting like grown ups than I’ve ever witnessed; like all the sudden… Read more »
Mike
Guest

Shut them both down…..AMR/AA are rotten managers any way they will squeeze flies out of a dead cow…..If US Air is smart they will run from AMR….Anti-Scream Creme couldnt get them out of this mess

Don
Guest
Not a fan of mergers at all. But I think for airlines at one point or another they are inevitable. However, having said that AA has done an awful job with management year after year. They always tried (sucessfully in most cases) to put the other guy out of business even if they took a loss. I understand that too. Business is business. With that being said it is now time for AA management to go and have Parker take the reins. He’s running a huge profitable airline now. From what I read it seems as if most sides want… Read more »
mirabella
Guest
Perhaps merger impatience might be mitigated by viewing events through the lens of the US Bankruptcy Code. In particular, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 reduced the exclusivity period for debtors reorganizing under Chapter 11 protection. This was designed to balance the inherent tension between a debtor’s need for time to design a plan for profitability and creditors’ need for recovery in a timely manner. Thus, the 20 months of exclusivity after the Order for Relief is granted is viewed as a shortened timeline and is generally given great deference by bankruptcy courts and unsecured creditors’… Read more »
Pilotaaron1
Guest
Being from the PIT area, I have been bred to hate the current US Airways. However, my in laws chose for us to fly on them to come visit. It was a great experience. Honestly the most hassle free flight I’ve been on in a long time. I think a merger would be good with one exception. US needs to seriously do away with the “preferred seating” nonsense. Having a premium economy is one thing, but just paying to sit in front of the wing with nothing extra is a joke. AA has an old product IMO. However, if there… Read more »
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