For those who like to continue to point out that a US Airways bid for American in bankruptcy will fail just like the bid for Delta in bankruptcy failed, Friday’s news that the airline had won backing from the American labor unions should finally prove that this is a very different animal. US Airways now has the inside track to taking over American. I’d say the chances of American coming out of bankruptcy independently are now pretty slim.
Remember, with Delta, US Airways didn’t try to get labor’s buy-in but it would have had trouble anyway. The US Airways plan then was to shrink the combined airlines, and that doesn’t sit well with labor. Meanwhile, Delta was able to rally its workforce and a huge groundswell of support to “Keep Delta My Delta” sprung up. That couldn’t be further from what’s happening at American.
US Airways doesn’t want to shrink, but more important than that, at American, labor hasn’t respected management for a decade. Sure, there’s a new CEO in town but Tom Horton is still part of the same regime. His announced plans for labor involved so many cuts to wages and jobs, that it wasn’t hard for US Airways to come in with a better plan.
Revenue Growth, Not Just Cost Cuts
See, the current management team at American blames nearly all of its problems on its costs. Sure, that’s an issue, but Doug Parker, Scott Kirby, and the rest of the US Airways team know that there’s a big revenue problem as well. Fix that, and you don’t need to slash labor to the same extent. That’s music to the unions’ ears.
The terms that American unions have agreed to will keep 6,200 jobs that would be furloughed under the American plan. While we don’t know details of where these jobs will come from, this plan should be a no-brainer for mechanics and those in the airports because they stood to lose the most under the current management team’s plan. But what’s really telling about the potential here is that the pilots and flight attendants have jumped on board.
American’s misguided plan is to flood the market with a 20 percent capacity increase over the next few years. Though incredibly misguided, that would mean more jobs for pilots and flight attendants. So even with that carrot being dangled, they’re supporting the US Airways plan. Why?
The pilots have been very vocal about it. In a memo, the message was blunt. “The APA leadership does not believe that AMR’s business plan will produce an airline that is viable long term.” In other words, they agree with US Airways and most airline analysts that they need some heft to compete with Delta and United. And they need that heft without organic growth since there’s no need for more capacity in the market. US Airways offers that opportunity plus the promise of a very smart management team that can make American competitive again.
A Better Team with a Better Network
The real issue here is that labor has no faith in American’s management team. They don’t believe that the business plan will work (read what the flight attendants say), and they have good reason to feel that way. They also don’t trust their management team and haven’t for years. In the pilots’ memo, it was pointed out that American has engaged the same attorney the much-hated Frank Lorenzo used with Continental/Eastern. Things like that do not help build trust. Neither does a Section 1113 proposal that will result in dramatic cuts.
More importantly, the US Airways efforts have started to help build trust with that management team. Some have worried that a combined US Airways/American would look like US Airways. It won’t. It will be American but better-run. The airline will remain American Airlines and will be headquartered right where it is today. There will just be a better team in place to run a better network.
Keep in mind, this is just an agreement with the unions IF an acquisition happens. That means there’s a lot of work to do, but this is a huge first step that might seal the deal. Why do I say that? Look at the creditors committee.
Swaying the Creditors
The unions hold 3 of the 9 seats on the creditors committee, and clearly they support this move. Boeing sits on the committee as well. With US Airways affirming the orders on the books, Boeing should be happy since it hasn’t sold an airplane to US Airways in years. This creates more opportunity.
The Pension Benefit Guarantee Corporation (PBGC) is also a member. It has been downright angry about American’s plans for its pensions, so you would think that US Airways would present a better option. And then there’s Hewlett-Packard. American has been working with HP on a new reservations system but nothing has come of it yet. US Airways, however, uses SHARES, a system that HP owns. You think HP will be onboard? Oh yeah.
That’s plenty of votes right there. If you have the creditors committee behind you, that’s huge. Of course, we haven’t seen what US Airways will offer yet, but you know that if it couldn’t offer something compelling, it wouldn’t be putting so much effort into this.
Can it Be Stopped?
What can American’s current management team do to stop this? Well, they continue through the process on breaking union agreements in bankruptcy (Section 1113). Could this move by US Airways make American reevaluate its proposal to try and keep labor? Probably, but labor is lost. A new proposal now will be seen as hollow. I don’t think American can get labor back, but really it doesn’t even want to try. The airline circulated some talking points that included this:
We believe statements of non-binding support from union leaders for alternative proposals are no coincidence given the timing of the 1113 process.
Right, it’s all just a negotiating ploy. Keep thinking that, American, and you’ll watch your airline slip away.
I’m sure there are still ways that American can try to maneuver, but so far it doesn’t seem to be trying very hard. It appears to be playing the “stay the course” game with a reminder that it has the exclusive right to reorganize until September 28. What it fails to mention, as has been reported by Holly Hegeman over at PlaneBusiness, is that the while American has the exclusive right, it’s not true exclusivity. The creditors can ask the court to end the exclusivity early if there’s another real option.
What About US Airways Unions?
Yet another common objection to this merger is the tired line that US Airways can’t get its own house in order, so how could it handle American? Very well, actually. The US Airways unions are being cautious, but they should be happy. US Airways has been clear that it needs to keep wages lower because it can’t produce as much revenue as the big three from it existing network. With American, that changes and raises will become possible.
Now, that might not please the pilots union USAPA since that group has acted against its own interests from the start, but that’s too bad. American’s pilots outnumber USAPA members handily. USAPA will disappear in a merger and then hopefully there will be a rational union leadership that will best represent its members on both sides. If the legacy American pilots can come to an agreement with US Airways so quickly, then the US Airways pilots would probably be insane not to take that same contract.
In the end, US Airways is making all the right moves right now. It has now become far more likely that we’ll see a combination of the two airlines.
[Original photo via Flickr user numberstumper/CC BY-SA 2.0]
Hahaha – Horton hears a… complete lack of support. What a brilliant line.
It’s interesting that you think Boeing will be happy about a US Airways merger. I would think the opposite – Boeing would be letting a large potential customer become part of an airline that does not order Boeing – Airbus would be happy that US just grew a lot, but Boeing would oppose it.
I disagree, Rohit. Except for the 777-300ERs on order, which US Airways would certainly like to have with a larger network, Boeing was almost frozen out of American. Airbus won the lion’s share of the narrowbody order and Boeing only squeaked in once it finally gave in to create the MAX. Boeing was the loser on that one since Airbus took such a huge chunk. Now, if US Airways affirms the Boeing order, Boeing has a shot at getting in with a much larger airline. It had very little chance with US Airways alone but now it would have access to both. Considering how Boeing almost was shut out of AA with the narrowbody order, I don’t think there’s going to be much love lost.
My thoughts exactly…
I agree with Rohit in regards to the Airbus/Boeing factor. Another thing that also may not help is that America West and US are still run separate of each other as well. But then again this is the aviation world. What we think will happen sometimes doesn’t always pan out that way. I hope they can save as many jobs as they can. Even if this merger does create less competition and and less choice for the traveling public. All the other airlines must be estatic and happy if this happens. Even though it is a monster that is being created, it means higher fares with less competition. I think (and I do believe this merger will happen….slowly) that after this happens we will see two, maybe three more airline merges, and a self regulated industry.
Don – America West and US Airways are not run separately. The only thing that is separate is that the pilots and flight attendants don’t fly together. Everything else has been integrated.
I don’t think anyone can really say US hasn’t gotten ‘its house in order’. Considering what the US management team has done with HP, US, the resultant suboptimal network, and a pilots union that would rather self immolate than act rationally–no fault of management, US probably is running one of the better ‘houses’ in the industry.
Obviously Peter, you don’t work for US. Those on the inside understand how fractured the house is. They run a profitable airline off the backs of employees that are STILL working on bankruptcy contracts. If you were to use who has the highest paid airline CEO as your basis to measure a better house, then maybe so.
Mary, I used to be quite sympathetic to those concerns, but the more and more I’ve watched this unfold, the more and more I realize that the pilots union has shot themselves in the foot and tied the hands of management.
They’ve put management in the position of having two options from the pilot’s unions, both of which can get them sued by the pilots unions. If the east pilots had acted like adults, and realized you can’t get everything you’d want, this’d been resolved four years ago.
I started w/ UAL in 1969 in RES. After 3 years I was furloughed. Airfares were higher then then they are today. While UAL was furloughing AAL was hiring Flight Attendants and I hired on w/ AA in 1972. I retired in late 2006. I loved working for AA, I got to fly the best of the best trips. I’m very grateful for that.
Until just before 9/11, AA was in pretty good shape, with the exception of some bad decisions to acquire someone else’s debt (other airlines). I’m sure it saved some jobs, but there was animosity about the purchase from the acquired airline employees and by AA employees as well. 9/11 was a devastating hardship especially for AA and for UAL. Our lives and careers have been forever changed.
We blame everyone and everything, mostly management, in our case, for the demise of a once great company; however, circumstances beyond AA’s control has hindered recovery. Lawsuits from 9/11, fuel prices, upper management wages, (yes, and even pilot wages, too). The thing is, as my husband says,” if you kill the cow (AA), there is no milk for anyone (employees).” For sure greed has run rampant everwhere!
Now, as far as AA/US merger. Don’t always think the grass is greener. My daughter flies for US Airways (America West- previously) and believe me the pay that she makes after 8 years is a total disgrace!. Her pay is finally up to about $21.- an hour. As a US Airways employee (previously America West) she has not had a contract since she has been flying. She makes about 1/2 of what the US Airways F/A’s make on the east coast for doing the same work. Neither US Airways, nor the east F/A’s care about their fellow F/A’s They only care about what benefits them. They just turned down a decent contract because of their own greed. In the economic situation that our nation is in, the more senior F/A’s were totally greedy. They only cared about themselves. The grass isn’t always greener. Be careful what you hope for.
Secondly, The Knight in Shining Armor (US Airways) appears. Seems like they did an end run around AA to get to the unions, who of course, don’t want to make another concession. I can’t say, I blame them, we all took a huge cut in ’03. We all did our part to save AA then. It’s a terrible thing what has happened to our company, and country, for that matter.
What is the answer? I sure don’t know and continue to listen to and chew on all information. If AA & US Airways merge, I sure hope the classiness and professionalism of AA returns. US Airways needs a lot of help in that department and so does AA (from what I hear).
I hope and pray for the best for both airlines.
I still say there’s a reasonable argument why American’s unions should be happy, and potential American would be better run, but that’s not the same as an argument that US Airways shareholders would be better off with a US Airways acquisition of American.
While AMR certainly has a revenue problem, they DO have a cost problem and they DO need to get those costs under control.
There’s no downside to US Airways PURSUING this, it likely DOES make it harder for AMR to cut costs on the labor side, so if the acquisition fails they’re in a weaker position than they would otherwise be post-bankruptcy. Certainly US Airways knows this and is partly motivated by this.
But a deal that raises US Airways labor costs across the board isn’t a good thing, that prevents cost cuts at American isn’t a good thing (compared to the potential of what could be done in bankruptcy without Doug Parker buying off AMR unions).
And claiming that the combined AA-US won’t shrink compared to separate operations seems naive. There’s a done of duplication between JFK/PHL and LAX/PHX. And duplication between CLT/MIA at least for Caribbean routes.
You don’t have fleet commonality, so there’s more complex and costly maintenance.
The mantra of ‘good management’ is undercut by a strategy of higher maintenance and labor costs, and it’s non-obvious how US solves AA’s revenue problem.. without shrinking.
No, AA+US definitely will shrink. I think what Doug Parker is arguing is that AA will shrink less if they merge with US than if they continue on alone in the long run.
Gary – I don’t think you’re going to see AA or US shrink when they come together. What I do see, however, is that American Eagle hasn’t been discussed. Now, I’d expect to see that shrink significantly. But mainline should remain intact. There will be plenty of shifting of resources around to different hubs, but I think Express is where the pain will be.
US Airways management is not an emotional management team. You may think that they’re going to overpay and raise wages too much because they want it so bad, but that’s not how they operate. They are pros at increasing revenues and they aren’t going to take on higher costs unless they feel confident about the revenue picture.
Gary – I have to chime in to say that the old ‘fleet commonality’ line is a red herring here. Look at Delta. If it has wings and is cleared to carry passengers it seems to be part of the Delta fleet. The only thing their planes seem to have in common is the paint job.
Having a common paint job is a feat in and of itself. If you look how long it took US Air then premerger US Airways to get every plane in the same livery Delta pulled off an amazing feat. AFAIK Gordon Bethune threatened to kill his head of maintenance if he didn’t get the whole Contiental fleet in the same colors.
I think if they do not merge now….in a few years American may enter a 2nd bankruptcy (a la usair) and then be dissmantled….by the way if they do merge they will be #1 in size (by number of airplanes-heavy on narrowbodys) united will be #2 and delta #3…not much hub dupplication by the way= dfw,ord,mia,phx,phl,clt…focus in jfk,lax,stl,bos,sju…
I understand the business and labor arguments for a merger, and I understand that these arguments win in a bankruptcy. As a frequent AA and US traveler, however, I would encourage AA’s flight attendants to ask the question: if US is such a great company to work for, why do their flight attedants consistently seem to hate their jobs? (I would make the same argument about gate agents.) It’s only my perspective, of course, but the difference in the quality of the ‘soft’ service (i.e., strip away differences in facilities, meals, etc.) between the two airlines is vivid. I get consistently good, if not great, service from AA, while I get consistently average, often terrible, service from US. When you see that kind of a theme, you begin to ask something about what it’s like to work for the company employing the workforce.
CP – I think you’ll find just as many people say that American’s workforce is mean and angry while US Airways folks aren’t as bad. But American certainly is expected to deliver a higher level of service and the new American will have to do the same regardless of who runs it.
I just flew US for the first time in ages…in domestic First (PHL-SFO). The FA was awesome and very attentive. Clearly one single data point that invalidates all claims of grumpy US staff made by people with statistically insignificant data points ;)
there is some truth to this statment. the orriginal usairways flight attendants were trained in service and safty the AWA flight attendants were trained on saftey there wasnt much service involved. AA flight attendants were also trained in service and safty
CP, you’re right. One of these airlines is run soooo cheaply, in everything! Right down to their cheap uniforms!
Gary Leff wrote about this ‘merger’ this morning and I’m curious what you think about his final and overarching point…
US Airways is bidding up American?s costs, and American management could be boxed into obliging to avoid losing control of the company. Whichever group comes out on top, they?re likely to overbid and wind up with an American that has higher costs than it would have otherwise had out of a bankruptcy process. Which jeopardizes the airline as a going concern. My fear in all of this is that a successful transaction could jeopardize both American and US Airways when the latter airline inherits those high costs.
Chris – I agree that this could push the existing mgmt team at American to make some moves to reduce the cost cuts in order to remain in the game. That would hurt American further if it stays alone. But I do think US Airways is going to do this very rationally. There’s no question the combined airline needs to have higher costs to support this kind of operation. But they won’t go too high where it doesn’t make sense.
That’s a lot of faith in US Airways management. Their costs will be higher, and they’ve made money by holding down every cost other than fuel. So it’s a big departure from the strategy which has earned the confidence you have in them. They’re also effectively saying they can make more money than AA management with a higher cost structure than what AA management was looking for. Which means that there’s an even bigger revenue problem that US Airways management would be facing than what AA management faces.
These are smart folks for sure, but also with a strong desire for bigger and more — HP grabs US, tries to grab DL, tries to grab UA, now trying to grab AA. They’ve failed in the last 2 attempts.
Your hypothesis is it’ll work because they know what they’re doing.
My hypothesis is it won’t work because they’re too hungry for a deal now and too ready to overbid.
But they’ve certainly convinced themselves quite correctly that going through this process, whether they win it or not, is to their benefit (provided they aren’t too distracted from running US).
Interesting question…. say they lose the bid for AA, I wonder what their offers to AA unions will do to their own labor relations/costs/negotiations. They could wind up without AA and with higher costs. Eek.
You’re absolutely right that I have a lot of faith in US Airways management. I worked under this team back at America West and I have followed them closely. I think they’re the best in the business without question.
The key strength of this management team is knowing how to deal with the hand their dealt. With US Airways, they’re never going to get the revenue production of a top carrier, so they need to focus on cost control to eek out a profit. With American, it’s a different airline that needs a different strategy. The US Airways guys have to shift how they operate to make it work, and they know that.
I don’t think they’re too hungry for a deal at all, though of course we can evaluate when we have details. They’re always looking for a smart opportunity and this is one of them.
On your last point, their offers to AA unions won’t impact what they can offer their own folks. They’ve always been crystal clear about how their current ability to generate revenue hampers what they can do with labor costs. Nothing changes if they don’t get American.
Cranky – after the United/Continetal merger had everyone saying AA/US needed to merge to stay relevant and competitive with the new mega-carriers didn’t you argue against this? Not that you say you are in favor, but what are your thoughts? I agree with CP that from my experience AA has been better than most airlines while US has been dismal at best. Then again CO was far better than UA.
In all the airline bankruptcy/merger news of the past several years I think the same general theme continues. We still have overcapacity and fares are just too low for airlines to operate in the current environment. I think mergers are the current vehicle for staying afloat.
A decade from now my money is on a legacy carrier going straight to Chapter 7. Over the past 5 years my corporate travel has been slashed due to cost saving and many of my friends have cut leisure travel in the wake of rising fares. I don’t see that turning around anytime soon, if ever.
A – I absolutely thought that a merger absent of bankruptcy between American and US Airways would have been stupid. US Airways would then have had to inherit much higher costs and that wouldn’t have worked. But I’ve long thought that with AA in bankruptcy, then a US Airways acquisition makes a ton of sense. That way, US Airways gets the flexibility it needs to get a cost structure that works. It’s certainly higher than US Airways of today, but it’s far better than what American had pre-bankruptcy.
Brett, If AA is taken out by US, how do you deal with the mishmash of hubs & focus cities between them. JFK/ PHL, CLT/ MIA, LAX/ PHX. All the while keeping ORD & DFW running as is.
I don’t have access to the detailed route performance numbers, so it’s hard for me to know for sure, but I have written about this before:
Thanks Brett, Now could this open the door for JetBlue to expand it’s footprint? I mean since AA will keep the PHL opperation, will AA pull back enough at JFK to give their interline partner B6 oppertunities for aditional growth?
Sean – You’d like it would be a better use of many of these slots having JetBlue take them over. But that all remains to be seen what makes the most sense.
Why do people keep saying that CLT/MIA are conflicting hubs? First of all, they’re nowhere near each other (CLT is closer to ORD and JFK than it is to MIA), and second, I don’t see any scenario in which CLT doesn’t maintain (if not expand) it’s current level of traffic as a domestic connecting hub. MIA will never replace the domestic volume that CLT currently handles, due to cost, location, etc. In my mind, CLT and MIA can co-exist without question.
Maybe I missed this before, but Oneworld partners was quick to jump in and help Japan Airlines during their troubles. So what is Oneworld doing to help AA during their troubles, anything?
Since US is not a powerhouse on the international scene, could some just see this as a domestic carrier trying to take over a large international carrier and feel they can’t do it which could effect the out come of all this?
Oh, I have a great picture of Willie Walsh (CEO of IAG, owner of BA and Iberia) alongside Doug Parker at the Phoenix Av Symposium. You can be sure that they’ve been talking about this. The difference with JAL was that it was threatening to potentially defect to a different alliance and the oneworld partners wanted to stop that. But here, I can’t see any outcome where the airline leaves oneworld. So while Willie might not say it, he should be excited at the prospect of having a better run partner in the US as a strong member of oneworld.
It wouldn’t surprise me to see British Airways and TPG line up behind the merger and help with exit financing.
What’s the advantage of staying with OneWorld? Star alliance is clearly the strongest of the three big ones, and unless US is losing out somehow by being in it, I can’t imagine that there’s much incentive to stay with one alliance or another when an airline is bankrupt.
Sure, BA and others will complain, but AA/US (if they merge) shouldn’t care, if they stay with Star.
I believe that in the announcement made on Friday, part of the agreement with the unions is that a combined carrier retains the American name, Fort Worth headquarters, and oneworld membership. I think that the benefits of being the sole North American airline in oneworld would outweigh the benefits of being in the stronger Star along with UA. Perhaps leaving UA as the sole US airline in Star persuades them to be less vigorous in their objection to the merger.
US Air is rather smaller than AA – so any takeover / merger has an element of the dwarf taking control of the giant.
Would Washington really permit United (with Continental), US Air *and* American to be in one single alliance without large aset disposals to prevent a cartel ? It’s almost certainly in the interests of the travelling public as a whole to have 3 equally balanced major carriers / alliances instead of just 2. Taking AA out of OneWorld would destroy its credibility with corporate clients, and consign OneWorld to history, leaving the world with just 2 main airline alliances.
Further, given that UA / CO is the dominant US based airline in Star and US Air has to play 2nd fiddle, do the economic benefits even exist to bring AA into Star ? UA / CO is already very strong in NY, Chicago, Texas and California. Apart from Miami, what can AA really add ?
I can’t see how a combined US/AA stays in Star. There’s no question that it wouldn’t be allowed into the Joint Venture that UA has with Lufthansa and others or the joint venture with ANA over the Pacific. That would put it at an immediate disadvantage. With oneworld, there are some fantastic partners in BA, Cathay, and Qantas. JAL is a work in progress, but it’s something. There is a much greater benefit for US/AA to be in oneworld.
How would scope work? US uses substantially larger regional feed than does APA permits. It’ll be a very sore point at APA if they have pilots furloughed while Republic flies E175s and Mesa CRJ-900s, especially if the numbers of either get expanded.
This has to have been addressed in the negotiations with the APA already. I don’t know the answer, but something has to have been agreed upon.
I was under the impression US offered APA Delta contract + 3% and no furloughs of current workforce. regardless of if that’s true or not, there are two things that are clear:
1) A new agreement = new scope clause, for better or worse.
2) Eagle was NOT invovled in discussions, AA+US-Eagle = more for mainline…
On Airline Forums, one AA pilot at DFW posted some notes about scope. Here’s what he wrote (condensed somewhat):
110% of the narrowbody fleet upto 81 seats.
tail # specific and it will be 2 for 1, i.e. two 81 seat jets to the commuter operation nets one new jet to the mainline.
Domestic code share will be limmited to 4% of the total (roiughly equivalent to 25% of jetBlue’s operation.
To me, the idea of tieing the commuter and mainline fleet sizes to each other is huge, and a wise move. As I read this, it looks like the commuter fleet will be completely flexibility as long as no aircraft exceeds 81 seats (a US E-175 has 80 seats) and the number of commuter aircraft does not exceed 110% of the narrowbody fleet count. The 2 for 1 thing doesn’t quite add up, but the idea that the commuter side can only grow if the mainline grows is an incentive for both sides to cooperate to enhance the whole enterprise, not simply shift jobs.
In another part, the poster mentioned that Parker wants to get out of the 50-seat business. Nothing about Eagle, yet.
“completely flexibility?” I need to edit better!
Not to mention I need to spell better. “limmited” “roiughly” “tieing”? How about “limited” “roughly” and “tying”?
DesertGhost – Any idea how credible that is? I would be surprised if the rank and file knew details as of yet. Might just be rumors at this point.
All I can tell you is that the poster wrote that he attended a DFW domicile meeting and took the notes I paraphrased. I went back and found the thread. It’s on Airlineforums.com in the US Airways section. The thread is titled “Things that may happen in a Merger. In one man’s opinion.” The post is number 59 in that thread. I’ll let you judge the credibility for yourself. You have a lot more insight than I do. I’m guessing you’ve forgotten more about the airline industry than I know.
From the writing and the gentleman’s (?) other posts, it appears he’s a pilot. I don’t always get too deep into most of those threads. They tend to degenerate into debates about Nicholau awards, etc. But I do find some interesting stuff there from time to time.
Thanks, DesertGhost. That might be right, but I guess we’ll find out for sure eventually. Thanks for sending.
A lack of the proverbial crystal ball notwithstanding, curb your enthusiasm.Harvey Miller and Weil Gotshal are formidable.
Is Weil working to help AA emerge solo?
It looks like someone’s done some homework. US failed to win labor support for its Delta takeover (which in my view was ill timed) so it failed (which has worked out well, since US attempted to merge with the wrong carrier in my opinion).
It’s impossible for me to believe that US Airways’ management and its consultants haven’t fully looked at the potential revenue generating capacity of the combined carrier and concluded it has the ability to produce enough revenue to cover the increased costs. That’s not how that management works.
Look at the track record. US Airways was made up of one carrier on the verge of liquidation and one which was in weak shape and has made money. It’s been slowly investing in capital improvements (new aircraft, the Envoy Suite, wi-fi, etc.). But of course, the negative “pundits” on airline chat rooms dismiss this. You don’t just snap your fingers and magically get new aircraft, etc. It takes time to manufacture planes; and leases, loans, CPA’s etc. have to be honored. US management also had the courage to lead the way in implementing fees. I know many don’t like them, but where would legacy airline profitability be without them.
I have little doubt the “new” American Airlines will look a lot more like the old American than the current US Airways. The added strength in the northeast and in Phoenix (yes, I wrote Phoenix) will give enough domestic feed to grow internationally and fund necessary capital improvements.
Much has been written about costs. Increased pay rates, in and of themselves, don’t necessarily translate dollar for dollar as added costs. There will likely be work rules concessions and some reduced benefits. In reading the American flight attendant’s Q & A, it looks like there may be some buy outs. Doug Parker has consistently said that there was room for raises given the current US Airways structure. It’s also asserted a new pilot contract would include higher pay (and costs, even with completely realized merger “synergies”) if the pilots would act like adults and work out their seniority disputes (my emphasis re: “adults”). US management has also stated that, while “nice” raises are possible, it will not negotiate agreements it can’t afford.
One more point: US’s proposal will put the “new” American’s pay roughly in line with Delta and United’s. It’s going to competitive, not harsh or excessive. In these agreements, American’s unions seem to acknowledge they are going to have to give a little and seem willing to do so.
Overall, I hope this gets done, even though Phoenix will lose a corporate headquarters in the process. It looks like a “win-win” for all of the stakeholders.
It’s nice to have the support of the union; however, I have not seen any real discussion of the acquisition costs. How much debt would US take on? How will that impact their performance? The potential is that a combined US/AA ends up being overleveraged, burdened by high interest expenses, higher cost of debt thanks to unfavorable debt/equity ratios, etc. Union approval is helpful but it should be a very small consideration in the grand scheme of things. Time to talk total dollars and cents… i.e., common sense!
My big complaint to your analysis is why would HP support the merger? Aren’t 2 customers better than 1?
I have reservations about Boeing being on board with a merger, as it means a management team that hasn’t bought a boeing product in years would be in control, but since they barely got the AA order in, maybe this is a chance to showcase their products. Especially since the new AA/US would have a larger longhaul network and more pax, making the 777 more attractive than the a330. Also, if AA is alone, it might not be long-term viable, which would hurt boeing if orders are cancelled, BK (again), or deferred.
As for fleets, I agree that Delta has made it work. I think it does add complexity, but if you deploy specific aircraft in specific regions, its less of an issue. US Air already runs 2 operations under one paint scheme, so why should 3 be much harder?
hopefully, the merger will progress, the new AA will join OW, and expand a huge codeshare agreement with b6 and AS to make up for old US-AA agreements.
Fleet commonality is overrated after 25 aircraft, so I don’t see any problem. Boeing and HP would rather have 1 healthy customer than one small one (US) and one in BK (AA).
PHX loses a headquarters but at least they have a hub, which in terms of Phoenix jobs is all they need to care about.
I think Parker will wait until the November election to actually announce the merger…
I think PHX would be reduced in size–if you’re going to concentrate on LAX and DFW, that leaves little function for PHX.
Noah – AA is far from a solid customer at this point. HP has been working on a new system for AA for years with no real result yet. I don’t know the inner workings, but I would think the relationship is strained at best. Meanwhile, you have an airline that’s happy running an HP product in US Airways. That’s a much more stable option and should bode well for them.
Besides, HP should probably care more about volume than number of customers, and it would grow its volume dramatically with this.
I don’t see anyone mentioning that US has for years been designated as having the worst passenger experience of the major USA airlines. They seem to PO passengers more than the other airlines.
I flew US from Chicago to charlotte in a Air Bus in preferred coach seat that I padi $25 extr. I am not a big guy but the seat is smaller than AA and there was virtualy no leg room. What happens with US and Star Alliance?
Lee – This has been talked about in other comments above, but you would see US Airways follow AA into oneworld. You would also see a product that more closely resembles what AA has today than what US says.
I wonder what would happen if some other airline came along and offered a lot of $$$$ to purchase a part of American say as an example their Latin routes what the courts and creditors would do? The largest creditors might like the thought of getting paid now instead of waiting to see what happens with a combined AA/US.
Just a thought.
Well that’s always a possibility. But that’s why I say that the chances of American coming out independently are slim. Might it be someone else who gets them out? Maybe. But if it’s an effort to pick apart American into pieces, labor won’t support that. And labor is a third of the creditors committee so that’s a big hurdle to climb.
20% is a funny number that Horton came up with. It corresponds almost exactly to how many more passengers AA would have to carry to comparable in size to United or Delta. Maybe be coincidence but does not make sense
Something had to be done and and I figured it was just a matter of time until US Airways would acquire them or try. It will be interesting to see how everything pans out.
As a consumer in the Washington, D.C. area and a member of Star Alliance, it has been great to fly with UA and US. If US Airway aligns with American, this will reduce our frequent flyer opportunities.
My preference would be to have two viable airlines merge, i.e., US Airways and Alaska. One on the East and one on the West, with a combined transcontinental network from Hawaii to Europe.
Yes. However, the scale of the new United should cover you. United redemptions are already good. I know the extra DCA options are nice but when you actually need to pay for a ticket you realize US rips you off and makes you go to IAD (or BWI on Southwest). When US leaves Star for Oneworld you’ll actually have interalliance competition.
One from the east and one from the west is exactly what US Airways and America West did years ago. Alaska Airlines only adds Alaska and Hawaii to the picture. AA and the oneworld alliance give you the world.
I’m really curious what happens to Eagle. I can’t see US Airways’s management wanting to keep such a large regional operation under the same corporate roof.
I put together some numbers about the number of planes in each fleet because I was curious. (Sourced from Wikipedia, yeah I know, but its close enough.)
AMR Mainline: 608
LCC Mainline: 304
AMR Regional (Eagle and American Connection): 299 – 33% of AMR operations
AMR Wholly Owned Subsidiary Regional: 284 – 31% of AMR Operations, 95% of AMR Regional operations
LCC Regional (Contracted and Wholly Owned Regionals): 292 – 49% of LCC operations
LCC Wholly Owned Subsidiary Regional: 93 – 16% of LCC operations, 32% of LCC regional operations
Combined Mainline: 912
Combined Regional: 591 – 39% of combined operations
Combined Wholly Owned Regional: 377 – 25% of combined operations
AMR currently has functionally all of its regional operations under the same corporate roof. To top it off the largest plane they have seats 66 and thats a prop. I know that the 50 seaters that make up a bulk of the fleet (40%) are generally not money makers, especially at Eagle’s higher labor costs. Given that American Eagle’s Pilots union isn’t the same as American Airlines’s pilots union, I can’t see them negotiating to protect Eagle’s standing.
So what happens to Eagle? Does it get spun out into its own company owned by the creditors? Does it survive into the merged airline, but then quickly get spun out to its shareholders? Or does the merged airline continue to own and operate Eagle?
I seriously doubt a merged airline would continue to hold onto Eagle, it just looks like it puts too much risk on their shoulders instead of just hiring the lift in like LCC does (and most of the majors do as well..)
Not only hasnt American Eagle been mentioned. Nor has anything been mentioned about AA foriegn bases and hubs flown by foriegn nationals. I am wondering how they are apart of a AA/US merger.
American Airlines isn’t a flag bearer airline. The United States Government doesn’t own any part of American Airlines.
And this friends, is why you should not comment on comment spam, even if it is somewhat on topic.
according to nytimes the TWU has a tentative agreement to be voted on soon. Wonder what the rest of the UCC, especially the creditors sans labor, are thinking? Im thinking, what a mess!
Jack Butler of Skadden Arps, counsel for the Unsecured Creditors Committee, has stated that the Labor Subcommittee of the UCC (comprised of Bank of New York Mellon, Boeing, Hewlett-Packard, Manufacturers and Traders Trust, Pension Benefit Guaranty Corporation and Wilmington Trust) have endorsed the rejection of labor contracts in the 1113 proceedings.
Hrm, its true that its huge, but I’m also curious if US Airways decided to get an agreement with labor first, then intends to work on striking a deal with the other six members of the creditors committee next.
mirabella, Please read the wording of the statement,’Putting aside the question of strategic alternatives, the committee supports the debtors’ business judgment of a standalone plan” while in bankruptcy,Butler said. Key words, putting asid the question of strategic alternatives…this is the first day, what can you glean from all of this? I’m sure that those who follow aviation more closely than I do, know much more but, as a 27-year AA flight attendant, I can tell you that I have not seen so much comraderie and eagerness to move forward, as I have since Friday, at least not since the sorrowful days post 9/1 and when we gave up the huge “Pull Together, Win Together” concessions in 2003, before we realized it was a fairly tale and executives would reap huge bonuses, on the backs of labor, during which the airline was consistently losing money.(Sorry for the run-on sentence) A facebook page was started on Friday afternoon, admitting only AA and US Airways flight attendants, and by Sunday night at midnight, it rolled over 10,000 members. Right now, it has 10,346, and it is growing. It was established to get acquainted, exchange info, ask questions, sooth fears and monitor the pulse. I can testify that to get 3 unions on board for a plan and then to get two union groups from one carrier and a union group from another, talking excitedly about what their future holds is unprecedented in airline history. We’re discussing a changing culture, service being the differentiating factor, kicking butt. I am, no doubt, jumping the gun but it would appear that there is a movement here. Lots of questions to answer and many hurdles, but there are 23,000 flight attendants cautiously looking forward, a direction we haven’t looked for a very long time.
@HJH This is awesome and inspiring to read. Shared visioning is an awesome experience. I hope that this goes through and improves US and AA for both labor groups, both customer groups, and US’s senior management. (IMHO, AA’s senior management on the other hand can have their damned golden parachutes if they just get out.)
In my opinion a “Buy-Out”, merger or anything you would call a take over of AA by US Air would be a disaster for Consumers and airline loyalty members across the board. Less competition, fewer flights, less cities serviced by air, and absolutely a minimum of airline award seats to use airline miles. It could be the end of viable award seat loyalty programs as we know it. I can understand the move by the AA unions in backing the take over, but the promises from US Air are just that; “PROMISES”. US Air has been fighting with the unions for years, ever since the AIR WEST and US AIR “merger”. They have had a civil war going on for years, yet Cranky (ex Air West employee) says he is “hopefully” looking for a better union situation if US AIR eats AA. I don’t think so. The AA unions may find that they will be going from the frying pan into the fire. Promises are made to be broken. All US Air would have to say is that cuts are an economic necessity. Seniority would be no gurantee to keeping your job as TWA survivors soon found out when AA took over TWA. Consumers will pay dearly if the government allows this take over to happen. Less competition NEVER is good for Consumers. If you think airfares are high now, wait and see the results of losing an independent AA.
Mike, make an important correction, US AirWAYS’s unions have been fighting with themselves. Management is caught in the middle.
Thanks Nick, I should have said that US AIR management has not been able to resolve the civil war between its unions in the years since the merger with Air West. Not a good track record and something it appears the AA unions want to overlook or dismiss.
Mike. First things first could you please get the airline names right? The two you’re referring to are:
America West Airlines
The former is almost forgivable to call US Air. (Although that’s a pet peeve of mine.) Calling the latter Air West, is simply incorrect. Period.
Next, why is it management’s responsibility to resolve a union’s civil war? I’d argue that it’s the unions problem to solve their own disagreements. That being said management has asked a court for guidance on what they should do, since they literally can get sued by a union no matter what they do. AFAIK, the court hasn’t ruled one way or the other on that.
Nick, I use the two names as it was easier for me to type, symantics be damned. By the way, before the merger everyone I know called it America West. Some, America Worst.
Regarding your comments on US Air management, any major company that has labor problems has to address it ASAP or it will not be functioning at its most efficient level. US Air delayed in addressing this to the court and since I am not a lawyer I can only wonder why years after the union civil war US Air management has not been able to address the court on expediting a legal resolution on this on-going labor strife. One can only imagine the situation if AA labor is dragged into US Air and there are additional labor conflicts added to the long existing ones. One could keep their fingers crossed and hope for the best (as Cranky) or prepare for damaging new labor problems in the future.
Bottom line: Management at US Air had better get their ducks in order regarding existing and potential new union issues or their dream will turn into a nightmare for EVERYONE.
A little bit of revisionist history there, Consumer Mike. Let me clarify a couple things.
As Nick says, the pilots union has been fighting with itself, not management. The union has been trying to blame management for its own problems, but that’s not the issue.
My understanding from details leaking out is that this agreement would apply until there was a merged group. Then in the merged group, they would negotiate for a contract or, if all else fails, go into binding arbitration. It’s a pretty clear path and those aren’t promises that can be broken.
Nice try blaming AA for that. The airline has nothing to do with the seniority integration. That’s an issue for the two unions to work out
1) The reason I stated the “carrot” being held out to the three AA unions by US Air MANAGEMENT regarding the savings of jobs does not publicly mention any later arbitration to “finalize” any labor contracts. The current press reports make it sound like the AA unions are satisfied with the SIGNED agreements already in hand. Are you saying they are short sighted?
The current union finger pointing at US Air impacts Management in a business sense, therefore they do have a vested interest in getting involved. As I mentioned above, US Air management is not shy about approaching union leaders or dealing with union issues WHEN IT IS CONVENIENT.
2) Brett, say what you will about the TWA survivors that went to AA, but the fact remains, AA promoised TWA personnel one thing and what occurred was something different. As an example; AA offered senior TWA people positions sometimes accross the country, with no guaratee how long those jobs would be there, TAKE IT OR LEAVE IT, while AA personel were allowed better (and more convenient) options. AA management or union? Who really cares if you are screwed in the deal. Don’t try and sugar coat company politics. As TWA people found out at AA, who ever said the world would be fair? Brett, splitting hairs will not change the outcome if AA loses in court.
1) Press reports do not have all the details. The union has without a doubt covered all bases in the negotiation or it wouldn’t bother presenting this. Very little of the actual details are presented publicly because it simply doesn’t matter to the rest of the world.
2) I’m not suggesting that AA handled the TWA merger well. I’ve been critical of it many times, but what does that have to do with this situation? Nothing. My only point was to correct the fact that management has anything to do with seniority integration. It doesn’t when it comes to unions.
Well, glad to know its just about you, and not communicating clearly with others. (Really, that is what you just said.) When you say Air West, are you referring to the yellow bananas? or the carrier banned in the EU?. Seriously, have more respect for the people who read your comment.
Re: TWA. Merger. I’m sure AA’s management and AA’s unions had every intent of employing TWA’s employees for a long and productive time when TWA’s assets were sold to AA, but none of them could have predicted the terrorist attacks of September 11th, 2001 and the affect it had on airlines and air travel. Sadly TWA’s employees were indirect collateral damage of those terrorist attacks.
Nick, apparently it’s plenty easy to type long winded rants but it’s too hard to type a few extra letters when referring to airline management.
For me it just adds to the entertainment value.
Has anyone heard that Delta has put forth its deal for American? According to my sources Delta’s plan is to buy AA and keep its most profitable routes in Miami and Latin America/Caribbean etc. Sell United the UK routes and sell Jetblue whatever it wants domestically. Can anyone concur?
It might be helpful in understanding the issue of management’s role in union seniority integration to read the Supreme Court’s decision in Humphrey v. Moore 375 US 335 (1964). The case law reads: “The issue here is whether the Kentucky Court of Appeals properly enjoined the decision of a joint employer-employee committee purporting to settle certain grievances in accordance with the terms of a collective bargaining agreement. The decision of the committee determined the relative seniority of the employees……..”
Has anyone read anything on Delta’s plan for American? I heard they want to buy AA and keep it’s very profitable Miami routes. Sell United the UK and sell Jetblue some domestic stuff.