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 
happening 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]
58 comments on “Why Haven’t US Airways and American Announced a Merger?”
Can the AMR board of directors not overrule the American management so that the deal can be done?
Chris – I believe the party with the most power is the unsecured creditors group. The board could also overrule management, but there is a heavy management influence there. But to answer the broader question, there are ways around management. You just don’t want to do that if you can avoid it.
I believe the managers and certainly the board in place at the time of bankruptcy filing have little power in the bankruptcy process unless their retention is essential to maximize what value remains in the company. If a company is expected to survive in some form, the existing managers may continue to run the company on a day-to-day basis, but the estate administrator appointed by the court is essentially the ultimate manager who reports to the assigned bankruptcy judge. No major decisions are made without her or his approval. You might think of the bankruptcy judge as the chair and the estate administrator as the president and CEO. The wishes of the secured creditors who are first in line to be paid weigh heavily on major decisions. I am not an expert, though.
The AMR Board has long been part of the problem. They’ve got to go, too.
The cheese stands alone–everyone wants US management in control: the street, labor, even historical precedent–except for AMR management and probably the board.
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???
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 so as to advance themselves one day.
David SF – I think the chances of them remaining in control of a combined company are slim to none. Wall Street hates that plan – I don’t think anyone is going to go for it. The only way management stays in control is if they go it alone.
Exactly how are US and AA expected to integrate, given that US has not fully integrated HP, 8 years after that merger?
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.
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” at the bottom of everyone, without base restrictions or fences
Parker has already shown a willingness to deal with multiple divisions. I would think an agreement like this more or less “phases out” the integration fight over time. But in this business, ya never know!
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 file for Chapter 11 but decided to do so to get its house in order and to be on a competitive level-playing field. AA is not desperate as US for the merger and still has the strength to survive long term on its own. On the other hand, US couldn’t resist the luxuries that it would get with a marriage with AA, albeit a forceful one. AA brand and network are still prestigious commodities. I don’t understand how the current US employees have any respect for DP. He is looking to not protect and preserve the company but is always ready to sell himself and the company for his own personal glorification. His track record includes previously failed merger attempts and a brash hostile takeover of DL. Having said all this, it looks like the merger is going to go through but I only wish it’s more on AA’s terms. Irrespective of what you say about the current management, they have worked hard in Chapter 11 to get AA back to profitability. The only reason the merger is going through is because the AA pilots want to overthrow the current management. It’s rather sad that they can wield so much power. DP is promising them carrots through the synergies that will be realized from the merger. I am sure there will be synergies when you combine two entities that will come at the cost of primarily shrinking US network and their workforce. PHX and CLT hubs will be gone. Tempe HDQ and PIT ops center will be gone. PHL and DCA may survive but PHL could become much smaler. AA’s cornerstone network will remain just as strong if not stronger. I just don’t see how US employees can sit idle and watch this happen.
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 survived much longer without a trip to BK court. It was indeed a vital option for them.
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.
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.
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?
@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.
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.
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 from AA or USAirways to be fair??
hahaha, fair.
Welcome to competitive business
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.
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.
Tom – I should clarify that I don’t think every AA employee wants a merger to happen. The chance of every person within a company that has tens of thousands of employees agreeing on something completely is zero. But the sentiment does seem to clearly point to employees being in favor of a merger more than not.
US Airways has old planes? You work for American and you’re saying this? American has an older fleet than US Airways, but that doesn’t really matter anyway. Delta has an older fleet than either one and I’d take that airline any day. And, uh, what exactly is an old route?
You suggest having a new leadership team to run the combined airline. I just don’t see it happening. Unless you can get Richard Anderson to leave Delta (good luck), who has a better track record out there?
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.
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 fleet — AA is getting rid of their MD80s just as much as US is getting rid of their old 737s.
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 like the NE Texas winds and you have a potential disaster.
Finally, there is the delusion of financial interests who think this will somehow ‘maximize shareholder value’ all around. The synergies of Continenited were touted as an inside the park home-run…and we see how well that has worked out nearly 3 years later. The consensus seems to be that the synergies of US/AA are well below the UA/CO bar, so why on earth would anyone expect superior results??
I am not saying that the status quo is acceptable for any of the parties involved. I am saying that there are allot of egos, near term self interests and force-fitting of parts that could very well destroy both entities. IMHO, bringing US into OW, getting closer to B6 (like DL & AS) and fully leveraging the JV’s with IAG & JAL is the rational path at this juncture.
Eric – If AA mgmt is lying about its 20% growth plan simply to get labor on board, then they are very stupid. You don’t lie to Wall Street about your plans, and if you’re smart, you don’t lie to employees either. This would be disastrous on several fronts if it was just some kind of joke to get their way. I don’t buy it.
I am not saying its a lie….I am saying its a wildly optimistic hypothetical that may….or may not….play out.
Refer to my days at UAL when we emerged from Ch11 in ’06; projections to Wall St and labor were based on $60-70 p/bl oil with aggressive international growth and domestic growth tied to GDP. Two years later the 737 fleet was culled and older 75s and 74s were parked. Did management lie to WS? No….but Black Swans happen.
Exactly Cranky, so why is Parker lying to everyone and saying there aren’t going to be layoffs when the merged airline is going to have around 30k more employees than UAL with the same revenue? That math is so simple and yet even you fail to acknowledge it. This is going to play out perfectly. Parker is going to win the job and then he’s going to get ousted in 2 years after he lays off thousands of people and probably makes a god awful mess of the whole thing. If he was smart he’d let Horton keep the job and take over after the layoffs ala DL. I have a question for you; if the US management is so fantastic, why did you ever leave there?
Eric – The difference is that at UAL, that was a real plan based on oil at the time. (It may not have been a good plan, but it was a real plan.) This AA plan also isn’t a good plan but it has to be based in reality somewhere. If things change for the worse in the economy later, then the plan may not go into effect. But it has to have been a real plan at some point, and nobody has made any statements that I’ve seen suggesting that it’s no longer part of the plan going forward.
Doug – I think you need to check your math. November job numbers just came out. United had 82,381 employees while American had 61,457. US Airways had 30,383. So the combined airline today has 91,840 employees. That’s 9,459 more than United, not 30,000. And that assumes that all of the employee cuts are completed in the American bankruptcy. This does not include regional affiliates.
But let’s look another way. The combined US Airways/American has 11.4% more employees than United. Now let’s look at mainline revenues only in the fourth quarter of 2012 so that we can see how those compare. US Airways had $2.098 billion in mainline revenue while American had $4.440 billion for a total of $6.538 billion. United had $5.913 billion in revenue. In other words, the combined US/AA had 10.6% more revenue.
So each US/AA employee generated $71,469 in revenue in the quarter while each United employees generated $71,776 in revenue. I could take this further to suggest that with a new management team, American should be able to generate greater revenue as well, but I don’t even need to make that assumption to prove the point. You still want to make that same argument?
And why did I leave America West? I was accepted into Stanford Business School.
LOL, actually I can add two numbers even without a Stanford degree. The data I referenced included regional / commuter operations and indicated about 28,000 more employees than UAL post merger. However, I agree with you that it makes more sense to focus on mainline operations in this case since those are the jobs over which management has direct control. On the other hand, even if massive layoffs aren’t necessary, there are so many ways this merger can go bad regardless of who is in charge. Your premise that only Parker can lead the merged carrier to the promised land seems specious at best, and like schilling at worst. Regarding Parker et al being the “revenue masters”, isnt’ AA growing PRASM faster than US?
Doug – You say “Regarding Parker et al being the ?revenue masters?, isnt? AA growing PRASM faster than US?”
It’s a lot easier to have your unit revenue grow faster when you’re starting from a low base. Fun with numbers, AA-style. I think the best way to show what the team at US Airways can do is to look at what happened after the merger in 2005.
You can look at early 10-Qs in via Edgar to see how amazing those early gains were. In 1Q2006 vs 1Q2005, US Airways (not including America West) unit revenues increased an incredible 22.2 percent. Q2 was up 23.8 percent. For the year it was up 16.3 percent. Of course, after those early jumps, it’s hard for the percentages to keep up that pace.
Of course, there’s no way to prove what will happen with AA unless US Airways takes control. I hope we get the chance to see.
Meanwhile, this has been fun to look at the employment numbers. I’m turning it into a post for Monday.
“It?s a lot easier to have your unit revenue grow faster when you?re starting from a low base.” This is exactly why you wouldn’t expect AA’s PRASM increases to be as big as LCC’s were because AA’s base wasn’t that low; it was middle of the pack and HIGHER than US’ in 2011 according to this data:
http://web.mit.edu/airlinedata/www/2011%2012%20Month%20Documents/Revenue%20and%20Related/Passenger%20Revenue/System%20Passenger%20Revenue%20per%20Available%20Seat%20Mile%20(PRASM).htm
That seems to undermine your point. The data also show the impressive PRASM bounce you reference but it also shows a similar (if less dramatic) bounce for DL after the NW acquisition.
More troubling for your case is how LCC’s PRASM has declined over the past several years to the point where they are actually a laggard now (another reason Parker is so desperate to make this merger happen). If they are such revenue gurus shouldn’t they have been able to consistently grow, or at least maintain, their PRASM? Perhaps it was just “fun with numbers” LCC-style?
Doug – Those numbers are simply incorrect. 2006 and 2007 are wildly wrong for US Airways. US Airways mainline PRASM was: 2006 – 10.35c, 2007 – 10.73c, 2008 – 11.04c, 2009 – 9.55c, 2010 – 10.68c, 2011 – 11.71c. I realize these are mainline only. Adding in Express with its shorter stage lengths would simply boost these further.
Of course, the point is not the absolute PRASM anyway but what you are doing with the network you have and then stage length-adjusting it as well to be able to compare.
First, regarding the network that US Airways has, the airline is going to lag simply because it doesn’t have the kind of hubs the others do. I’ve written about this before. There’s no reason to think that every airline network should be able to generate the same PRASM. So the question is – how well are you doing compared to the max potential for that network?
The second piece is that you have to adjust for stage length since shorter average stages are naturally going to produce higher PRASM. I’ll just use the MIT data for average stage length, though I don’t know how accurate it is. American’s avg stage length was nearly 20 percent less than United’s 2011 according to the data. So it is going to look better in comparison even though it’s actually not.
American’s stage length was 5 percent higher than Delta’s but the PRASM data for Delta is wrong. Total PRASM for Delta in 2011 was 12.89c, 2010 was 11.71c, and 2009 was 10.34c according to Delta’s 10-K. American’s lower numbers in the MIT data are correct within a hundredth of a cent.
Torturing numbers is an art, not a science.
Cranky, the data come from two different filings (DOT vs. SEC), and while they should be pretty close, it’s not too surprising they are different. Interesting that AA’s are most similar in the two different filings; perhaps AA wasn’t having as much fun with numbers as the others.
As we discussed in your previous post where you tried to convince everyone that you aren’t biased against AA, it makes no sense to compare the performance of a carrier in bankruptcy to one who has already emerged from bankruptcy and has the benefit of stronger balance sheet, better cost structure, more favorable work rules and lower labor costs to improve its product and grow revenue. How many of the other carriers (including LCC) were growing revenue relative to their competitors before they went into bankruptcy?
With larger, two class service regional jets and more code sharing opportunities, AA is in a much better position to grow revenue whether standalone under Horton or merged under either team. If Parker takes over he’ll get to take credit for the hard work that others performed.
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 not likely to come in anytime soon. Without liberalization of traffic between hot markets such as China, its hard to see exactly where such huge numbers are going to be gained, and in premium routes. And neither company has the fleet or product that demands premium international customers.
Sean S – I do see a lot of good that comes out of a merger of course, but there was only one thing I wanted to address in your post. American has anything but a deteriorating situation in Miami. The airport has now become so expensive that everyone else is running away. The high airport costs have actually allowed AA to strengthen its position in Latin America with high fare routes and little chance of low cost carrier penetration. If I could pick one of AA’s hubs to have as my own, it would be Miami for that reason.
AA’s position in MIA is effectively a dead cat bounce. Everyone agree’s that AA’s product is abysmal, and other carriers are not sitting idly by. DL is making aggressive moves in Latin America, and despite their relatively small market share in the arena compared to AA, can one seriously argue that AA is going to out compete a financially healthy DL that is making significant investments in foreign carriers such as Aeromexico and GOL? And with a more affordable airport in FLL down the street? Regionally AA is out of luck, regardless of the fact they dominate one hub in a region served well by two airports.
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 to hold on instead of ceding ground to US) makes sense on the surface, that’s something that can be swatted away rather easily. Regardless of what Horton & Company say publicly, bottom line is, any executive in a position like his has a price they can be bought at. Give him and any other recalcitrant AA management enough dough, and they’ll bail. A lot of the rumors you’re hearing are more than likely just posturing to work out a richer golden parachute. If there is a management dispute between the two sides, I suspect that’s where it’s at – Horton & Company want bigger “please go away” payments than Parker is willing to bear. Those negotiations can take time, but if that’s all that’s holding this up, you will see a merger announcement sooner rather than later.
What I suspect is the bigger issue, the public announcements notwithstanding, is that the various union factions can’t play nice. You have two highly militant pilots’ unions at work here, US East and AA. Yes, AA’s labor problems are largely management inflicted, but the bottom line is, it now is what it is. I just don’t buy that all of these guys – especially given that USAPA has shown that it’s willing to go so far as ignoring binding arbitration if it doesn’t get exactly what it wants – are going to be able to hammer out a seniority agreement that everyone can live with. You have the groups saying that they are on board with a merger, but on the AA side, a lot of that is driven solely by the fact that they hate AA management so much. Once it gets down to the nitty gritty of working out the details, I personally think USAPA and the AA union coming up with an agreement has about as much chance as a certain warm, toasty place freezing over.
Just my $.02. I could be totally wrong.
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.
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 have flown them a lot in the past. They have some things to get in order but I’d rather see them do it on their own without merging to become a “mega carrier.” US has always been one of my least favorite airlines. Nothing but bad experiences comparably speaking. Management would have to be miracle workers to make a combined AA/US better than they are separate IMO.
MeanMeosh- Thanks for the detailed post. I just don’t know if I agree that there is a price for everyone. There are some people who are driven by power more than money. And in this shrinking industry, it would be hard for Horton and friends to get as much power as they hold running American. Some people also carry chips on their shoulders. They may think they have a great plan and want to prove it. Money motivates a lot but it doesn’t necessarily motivate all. I really don’t know their motivations.
But I really don’t think union activity is an issue. I mean, don’t get me wrong. It’s an integration issue. But what we have is two pilots unions that are working together on this MOU to create a merger framework. It won’t be easy to get it completed, but they are certainly on a good path. Regardless, that is not likely to be the hold up from either management’s perspective.
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.
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.
“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, since the AA pilots aren’t a particularly happy bunch either) that don’t want to cooperate with management? It either torpedoes the merger, or you end up with a doubly messy labor situation that is sure to create an even more miserable environment. How is that good for customers or either airline?
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 entirely, mitigated. Pilots currently represented by the APA would represent 60-65% of the pilots at the combined airline, USAPA would represent 35-40%. At this point, the East pilots would make up a relatively small portion of the combined group, probably no more than 25%. Putting up a fight like the East pilots have been will be far more difficult when they’re going against the combined West and AA pilots. Truth be told, the APA is definately in the position of strength here, especially given the divisions ongoing between the East and West pilots. As one USAPA member put it in an online discussion about the MOU vote, ‘the APA is driving the car, and USAPA are the kids in the back seat whether they want to be there or not.’
Another major factor is that binding arbitration is now legally required if integration negotiations are unsuccessful. This requirement may make it far more difficult for any of the groups to mount a legal challenge to a binding arbitration ruling. This is different from the US/HP merger where binding arbitration was a chosen route that was taken partially because both groups were represented by ALPA which thus had to remain neutral. That being said, I really don’t see there being very much interest in going to arbitration with this integration.
Another major factor here is the amount that the USAPA pilots have to gain contractually in a merged airline, as they are brought to parity with AA’s pilots. There is a reason why the USAPA board unanimously recommended the MOU. Parker has made it clear that a joint CBA and a single operating certificate in a very short amount of time (24 months from the POR is the time being tossed around) is a top if not the top priority. Approval of the MOU will put all pilots on the same pay scale once the merger closes/POR is approved. The significant pay increases that the USAPA pilots will be receiving will hopefully offset some of the discontent that may result from a merged senority list.
It is clear to me that a major reason for Parker’s enthusiasm to merge is the ability to finally put this infighting between the pilot groups behind them. East and West pilots simply won’t have the clout to keep fighting once the APA is brought into the picture. I’m not saying that integration will be easy, but as long as there are elements of the agreement that provide a benefit to the two US groups, I think an agreeable negotiated arrangement will happen.
“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 they are all just going to fall in line because Doug Parker in control.
Nick/Hunter – I believe the creditors can request to have the exclusivity ended anytime. At this point, everyone is still trying to make it work as a friendly deal, but I have to assume that if the creditors get tired of waiting, then we could see an end-run if they really like what US is offering.
I remember reading a story which stated that the UCC wants mostly equity in a merger deal. That’s a pretty strong endorsement of Parker’s plan, if true.
However, the UCC does keep backing AMR’s requests to extend the deadline to file its POR, the most recent of which was just made today. Since the UCC keeps backing these requests, I don’t think that they see it as necessary to try to muscle AA management out of the way. I do wonder if the fact that they are only seeking to extend the deadline by 15 days from the previous request may indicate that there is a merger plan in the works. It has been reported that while US and AA’s NDAs expired today, the UCC’s isn’t until 2/15, and the airlines would probably extend theirs to match that. A merger decision on or just before 2/15 would leave roughly 2 months to convert the agreement into a POR.
Ben – US Airways backs the exclusivity extension as well. That gives them more time to get AA management on board. While discussions are still ongoing, it’s in everyone’s best interest to keep exclusivity. It’s only if things fall apart that US Airways and the UCC would want to end it.
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
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 a US Airways controlled deal. I know this is no walk in the park and it will take a long time, but I think most people are tiring of having AA fix problems that don’t exist. New uniforms and new paint jobs on planes are not the fixes. And I wish all the employees at AA all the best.
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’ committees.
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 is a merger, I hope they take to good from both and go from there.