UA Fan

Obama, please please crush any more airline mergers. Haven't we had enough of this? Good grief.

TAWS

Not sure why US doesn't get any respect from a corporate standpoint. In the last few years, they have been MORE profitable than Delta, American, United/Contiental despite having a low market share.

Delta will not get regulatory approval for a merger and they know it. They are just playing games to disrupt the process. If a merger were to happen, it will be US that buys them out. US might keep AA's name but the leadership will be US at the helm and I doubt the new company will be based in Texas.

Ambraciot

Wow, someone's actually fixated on an even more impractical scenario than the ones I'm envisioning.

LCC has no money to finance an acquisition and no operational assets to offer in a merger. US's route network has more redundancy with AA than any of the other 5 major carriers. None of US's hubs would have survived the recent rounds of cuts in AA's network.

LCC has been forced to make deep cuts to stay profitable of late, an attempt at rolling US into AA would almost certainly eliminate all current US operations and saddle AA with even more debt. I can't imagine a judge or creditor approving a merger with US due to these basic operational realities.

FWAAA

The only way US could take over AA in bankruptcy would be to offer billions of borrowed money to AA's creditors, now that US stock is trading at $6/sh, down 90% from its early-2007 values. So AA cuts billions of debt in bankruptcy only to be saddled with billions of new debt via a Doug Parker-led US acquisition? I don't see that happening.

Say AA management gets its POR confirmed and exits Ch 11. Its market cap will probably be several billion dollars - where does US get that money to buy the stock (since the US stock is basically worthless currency)? Billions of borrowed money? So the resulting combo is saddled with billions of new debt? Again - I don't think that's a likely outcome.

To be sure, AA would bring a lot to US. But US doesn't add much to AA - and thus, I don't see AA's creditors being enamoured with a US acquisition.

TAWS

US/TPG are considering a joint bid. They will have more than enough capital to takeover AA. US is being squeezed out of market share and they will do everywhere in their power to make the merger happen. If a US/AA merger was not a realistic possibility, US would not have spent $$ to hire Millstein/Barclays as consultants.

This is from the article on Bloomberg:

"TPG is “among the usual suspects” for possible airline investments, and may be assessing whether to get involved with AMR alone or with a partner, said Mann, the consultant. The Fort Worth-based private-equity firm has had a close relationship in the past with US Airways."

“It’s the last plum out there,” said Ray Neidl, a Maxim Group LLC analyst in New York. Neidl said he expected interest from TPG in tandem with US Airways, because “TPG knows airlines, and you’d really want an equity partner coming in there with you.”

http://www.bloomberg.com/news/2012-0...ranks-cut.html

UVU Wolverine

While US Airways may be performing well on the books, I believe most people would agree that they are still struggling from the America West merger along with low standards for a major airline. Yes, they're doing well financially but I don't think they have a lot going for them when it comes to customer satisfaction. How many people here avoid them at all costs on TATL? Experiences may differ, but they are still pretty low in my book.


I talk to a US F/A fairly frequently and she still tells me how much animosity there is between East and West. US needs to still fix the America West merger before going ahead with another airline.

FWAAA

I'm familiar with Doug Parker's latest quest and the involvement of TPG. US spent plenty to line up financing for the failed takeover bid of DL, which was soundly rejected by the DL creditors committee. US also spent money looking at a takeover of CO (went nowhere) and longed to join with UA (nowhere).

Bottom line? Parker was successful with his takeover efforts just once, with US when it was teetering on the brink of liquidation. The involvement of high-priced consultants and TPG doesn't mean he's likely to be successful this time.

Ambraciot

Actually your source makes it quite clear that the TPG evaluation of whether to bid on AA is completely separate from the evaluation US is financing. While TPG is likely to look for a partner for the bid, there is no reason to suspect LCC would be on the short list.

Unlike other airlines (AS, B6, VX...) US has nothing of value to add to a private equity firm like TPG's bid. TPG has worked with many major airlines in the past, their involvement with US was hardly successful, that shouldn't be an incentive to partner with US again.

Global_Hi_Flyer

US is still screwed up from the merger with HP. They've still got borked union representation & adding AA's unions to the mix will only make it worse.

As badly as DL treats the customers & as badly as their online booking engine/award calendar work in terms of customer-facing issues (changing pricing during booking/bait-and-switch & excessive award pricing/calendar failure, which many of us believe are intentional), the operations integration (boarding passes, customer info, FF accounting, agent systems) went remarkably well - far better than US did in their merger. In fact, UA/CO is light years ahead of US's systems.

I am strongly in the camp of believing that DL is trying to bid up the price for their own purposes. They've done it before....

njfan07

There is a very active group on FT that despises Parker. To put the term "despises" in context, in the infinitesimally tiny chance that the alleged Mayan prophesies are true and the world ends this December, that group will undoubtedly blame Parker for the demise of the world.

Right now, AAdvantage is the best FFP if you're an EXP. If US takes over AA, I expect that will change for the worse and more people will join the "we will hate Parker till our dying breathe group". This will happen despite the obvious trend among all the airlines to devalue their FFPs.

I agree that if US buys AA, they will keep the AA name and move HQ to Tempe.

AA unions hate AA management but US unions hate each other. Taking over AA might actually end the battles the US unions are waging with each other.

They won't close any hubs or dramatically reduce flights because the airlines are now flying with very high loads. Some frequency might be reduced in marginal areas but most of the profitable gains will come from simple consolidation of operations.

ijgordon

It's not usually viewed in terms of relative market share. Who takes over whom is typically viewed on a financial basis, specifically which company contributes more equity to the merger. To keep it relatively simple, right now US has a market equity value of $968 million; AA's market equity value is $135 million. If the two companies were to just simply merge on a 1:1 basis, the former US (stockholders) would end up owning nearly 88% of the combined entity. (Of course the #'s will change post-bankruptcy, but this is just illustrative.)

Of course it can be more complicated, I think from a financial standpoint UA purchased CO (slightly more than 50% of the equity) but a CO exec got the CEO job (and supposedly most other key management positions were split relatively equally).

Stripe

Yes, and bring Gordon Bethune out of retirement. AA hasn't had a leader who knows how to run an airline since Crandall.

FWAAA

That doesn't exactly jive with my copies of US Airways' 10-Ks.

Not counting the net loss in 2005, when the merger was approved and US exited Ch 11, US has reported an aggregate net loss in excess of $1.1 billion, including the $53 million net income for the first three quarters of 2011. Yes, that's more profitable than AA, but both DL and UA earned over a billion dollars in 2010 and both are on target to report another billion plus for 2011.

Yes, US has had three profitable years since 2005, but the profits are dwarfed by the combined loss of $2.4 billion in 2008-09.

Parker has excelled at leveraging the pilots' seniority dispute to keep wages far below the levels of the competition; jetBlue pays its pilots substantially more than US East on comparable equipment (190s and A320s). That alone has helped Parker produce those three full year profits. Perhaps the Delta creditors' committee realized that Parker's success at US wasn't the result of extraordinary airline managment as much as it was due to topped-out 737 captain payrates at US East of $85/hr less than at Southwest.

Delta is making profits and it now pays its pilots more per hour than AA. That's a turnaround.

TAWS

You aren't counting 2009/2008, where Delta and United lost a lot more money than LCC. Obviously, accounting practices vary, so I don't want to get into a technical debate about earnings/profit. Obviously, United and Delta are CURRENTLY both more profitable than US Airways. This is the reason why I think US Airways sees a merger with AA as a necessity as they can't compete without expanding.

Traveloguy

I'm actually surprised by some of the posts here.

DL is acting in a manner consistent with any half decently run competitor. DL is simply putting itself in a position where it can be potentially allowed to look at AAs books and help ensure that whoever does takeover AA pays more than they would otherwise have done. If they did in fact end up buying AA (not likely IMHO due to competition concerns), that would effectively be a secondary prize rather than the core rationale behind the current move.

TPJ being involved is of no surprise here. In fact their absence would more likely indicate AAs chances of coming out of Chapter 11 as being slim. TPJs role is to provide cash and keep management focused on the game to improve the balance sheet. I doubt they will want to pi$$ of customers so don't expect too many nasty changes should they become involved. Do however expect them to focus management on reducing duplication, sorting out agreements, selling non-core assets, and fast tracking integration again all to improve the balance sheet (and thus make a profit out of putting their cash in the pot).

Personally I would not be surprised to see IAG getting involved in some manner, and perhaps even another OW carrier. I don't however see that as being the main event due to the exisiting US ownership rules still being in force. The days of a true global airline are not yet here, especially when both NA and EU governments are playing more towards protectionist leanings.