dcAA

More importantly, regulators would never let it stay in *A.

Carolinian

As a standalone company, AA reaps the benefits of what Horton has accomplished in Bankruptcy. Getting tied up with US on Parker's terms means that Parkers bribes to the unions negates everything Horton has accomplished in bankruptcy, and it saddles AA with US' debt load. That would not be a rational business decision.

Carolinian

The DL takeover of NW has gutted the ff program. It is now one of the biggest jokes in the industry.

frambusch

+1

It just doesn't make sense to go through Chapter 11 to restructure your balance sheet and re-negotiate contracts and leases, then merge with US and assume all the liabilities they bring to the table.

The rational solution is for AA to emerge, US file BK, then AA can add the appropriate pieces of US to its balance sheet.

But, I realize rational probably has nothing to do with it. Egos and politics will always trump rationality.

FWAAA

I disagree with the bolded part. Before AA filed for bankruptcy, its labor costs were higher than any other legacy airline. AA's debt load and other fixed costs were not the problem (I think that US' debt levels are comparable to AA's on a proportional basis). Now that AA has filed for Ch 11 protection, it has cut its annual labor costs by almost $1 billion and, of course, has cut fixed costs and reduced debt on old airplanes.

If AA's fixed costs and debt load are currently crushing them, then not even US would be in a hurry to merge, as a merger doesn't solve those problems.

I agree. US is currently promising AA employees higher compensation to take effect immediately upon a merger which is contrary to the reasons that AA filed for bankruptcy: to bring its labor costs down from their industry-leading position. On top of that, US is finally (almost eight years after its merger) offering to raise its own employees' compensation to the new AA levels, which requires hundreds of millions of dollars in additional annual costs.

Doug Parker has repeatedly told his employees that the US hubs don't generate sufficient revenue premiums to enable US to pay its employees the same wages as UA, DL and AA can pay. I believe the numbers were a 16% revenue disadvantage at PHL, DCA, CLT and PHX compared to the other legacies' hubs but that US made up for it with 19% lower costs.

Yet all of a sudden, with the newfound riches of AA's premium revenue hubs, US can afford to pay its employees AA wages. Wonder from where those hundreds of millions of dollars will come?

Ahh, yes, synergies. If the synergies are truly fantastic, then maybe a combined US-AA earns a profit. Perhaps there's a plan to force PHL, DCA, CLT and PHX passengers to pay the same high fares as the other legacies get at their higher-revenue premium hubs? If that were possible, of course, you gotta ask why that hasn't happened since the merger of US and HP in 2005.

Agreed.

Ambraciot

From a network, synergy and cost savings perspective it still makes more sense for AA to emerge then pick up VX or HA. LUV can figure out what to do with LCC post bankruptcy.

littlemookie

If you were preparing a 5 year plan, do you think AA as a stand alone company can be competitive? Parker may be promising the world, but remember that it's going to be his mess if the merger goes through. Will he really shoot himself in the foot just to get AA?

The company that comes to mind when I think of AA's situation is GM, but the auto industry is far different than the airline industry (IMHO). GM became profitable by shrinking, and focused on profitability at the cost of losing market share. AA's profit engine is business travelers and corporate contracts, which forces them to have a large global and domestic presence (including oneworld). I agree that the merger may saddle the new entity with a ton of debt, but the increased pricing power, cost savings, penetration into new hubs/markets, may make a merger a better long term solution. I personally would rather see a Jetblue/AA merger, with Jetblue taking over most of the domestic flights, and AA focusing on international expansion.

littlemookie

I agree that the chapter 11 filing helped fix some of AA's debt load and fixed assets, but the new planes on order are still expensive, and labor costs, while comparable to the other airlines, still represent a large fixed cost.

This may sound crazy, but I wouldn't be surprised if Parker gets AA, and then 2 years down the line takes the new entity into chapter 11 and undo all those promises he's making to the union.

AA needs to grow, and quickly, if they want to remain a stand alone company. I believe that Delta and United took a lot of business from AA when AA started to retreat and retrench in several markets, and AA can't afford a price war right out of BK.

LETTERBOY

Yes, it looks like it.

That doesn't sound crazy at all, it sounds quite logical. The problem is that AA's unions are blinded by their irrational hatred of Horton and current management, and thus either can't see, or refuse to see, that.

pritomd

I haven't been keeping up with this, but what's the general story now? AA getting US? US getting AA? How soon/feasable is this? I would love to be able to get direct flights to BOS from DCA in OW.

MiamiAirport Formerly NY George

I'd say its more of a case that Parker believes (right or wrong) that the synergy between AA and USAir will cover the promises being made to labor. Its a risky proposition and anything from a rise in fuel prices to a total meltdown in Europe could derail even the best of intentions.

The employees (unions) are taking the typical human nature track. And that is to take what you can get today and worry about tomorrow when tomorrow comes.

diver858

Current AA aircraft - in particular MD-80 and 757 - are HIGHLY inefficient, fuel cost is a MAJOR burden. While I do not have the financials, I seem to recall that the replacement 737 and A320 aircraft are MUCH more efficient, all leased, at very attractive rates, should have a positive impact on the bottom line. Similar scenario at AE.

pritomd

So in regards to my previous post...I've been reading and it says the merger is very close? Who becomes the "Main" company? Will they remain in OW or *A? I welcome this since I enjoy more routes out of DCA.

DCtrAAveler

Very close? Only the principal players really know, but recent statements seem to indicate an answer may be known in a matter of weeks. One bondholder group is pushing for a resolution before 15 Feb when its confidentiality agreement runs out.

"Main" company? Not sure exactly what you're asking here. If you mean which brand survives, then it's American - Parker said that early on, if I recall correctly. If you mean who runs the show, then that's still up in the air, and is reportedly one of the main points of contention in the talks right now. Clearly Parker wants himself and US management to take over. AAs unions want that too.

OW or *A? Speculation has been that with AA as the surviving brand, that OW membership would be retained, along with the exising JVs and other agreements with IAG (BA/Iberia) and other OW members. I don't know that any definitive statements have been made to this effect, however.

FWAAA

On alliance membership, it's a certainty that AA remains in OneWorld no matter what happens, merger or not. Not only did Parker tell everyone that it would be called "American Airlines," and remain headquartered in Fort Worth, but according to Capt Bates (former APA President) Parker assured him that AA would also remain in OneWorld. For example:

http://uk.reuters.com/article/2012/0...83J17320120420

From a practical standpoint, there's almost no chance that EU regulators or the US antitrust enforcers would permit a merged US-AA to join either Skyteam or Star. EU regulators have said they're not happy with the reduction in TATL competition to basically just three entities each participating in an immunized joint venture (plus the assorted oddball unaffiliated airlines, including, of course, US Airways). But wait: Isn't US a member of Star? Well, yes, for mileage earning and redemption, plus lounge access and other frequent flyer perks. But inclusion in the UA/CO/LH immunized joint venture? No. No wonder US had the lowest average fares to Europe in 3Q2012, according to the DOT - it has to compete against the Skyteam, OW and Star Alliance joint ventures.

On top of that, there's not a chance that Parker would try so desperately to take over AA only to jettison the hard-fought victory in obtaining the AA/BA/IB TATL immunized joint venture (that was in the works for over 10 years) or the hard-fought victory three years ago to keep JAL out of Delta's clutches when every media outlet in the world proclaimed that JAL had already joined Skyteam.