American Reportedly Could Merge with US Airways This Week
Airlines & Airports American Airlines James Shillinglaw February 10, 2013
The long-rumored merger between American Airlines and US Airways could finally be concluded this week – or maybe not. Press reports late last week said the decision to merge could occur on Monday as American’s board of directors meets to vote on the combination, though the board still could decide to keep the airline independent. American has been operating under bankruptcy protection since November 2012, so any decision must be approved by its creditors’ committee as well. US Airways’ board of directors was reportedly meeting about the merger over the weekend.
A merger between American and US Airways would create the world’s largest airline, bigger than United Continental and Delta, but it also would alter both airlines’ management teams, labor unions, airline alliances and future strategy. Indeed, the major stumbling blocks to a merger have apparently been the division of ownership stakes and the management roles of executives from both airlines in a newly combined carrier. One report said negotiators from both airlines have decided that a little more than 70 percent of the new airline’s stock would go to American’s bankruptcy creditors, while the rest would go to US Airways shareholders.
Another report said US Airways CEO Doug Parker would be named CEO of the merged carrier, which would keep the American Airlines name. American recently announced plans for a new logo and livery to go along with a new fleet of aircraft. A role for American CEO Tom Horton reportedly had not been settled but he could be named non-executive board chairman at least for a short period of time. Horton over the past year has appeared to champion a go-it-alone strategy whereby American would not merge with any carrier once it emerged from bankruptcy.
According to press reports, an official announcement about the merger could come as early as Tuesday, Feb. 12, though the deal could also be delayed. Most airline analysts have supported a merger between the two carriers and key American alliance partners, such as British Airways, have backed it as well. American’s labor unions also have made agreements with US Airways in advance of a possible merger.
Indeed, labor unions from both airlines are supporting the merger. American’s unions have had a contentious relationship with American’s management team and apparently would welcome a new team of executives. On Friday, Feb. 8, US Airways pilots overwhelmingly approved a transition deal for a prospective merger with American.
But not everyone believes an American-US Airways combination would provide benefits. According to some reports, air travelers may end up losing if the merger goes through because it will likely increase airfares, reduce choice, increase overcrowding on already crowded flights, downgrade hubs and cause job losses at both airlines.
But others say a merger will be good news for consumers because it will fill in gaps in the two airlines’ respective routes, hubs and networks. American would gain new routes and service in the U.S. Northeast and parts of the Southeast, where US Airways is stronger. Reports also say the newly merged airline would end up being be part of American’s oneworld alliance, instead of US Airways’ Star Alliance, which some analysts view as weaker.
On Friday, the Business Travel Coalition released for a second time a white paper produced jointly with the American Antitrust Institute that show a merger between American and US Airways could substantially reduce competition on a number of routes, create regional strongholds at key airports across the country, and starve smaller communities of important air service. The reports says such a merger would complete a troubling transformation of the domestic U.S. industry to four powerful airline systems -- American, Southwest, United Continental, and Delta -- that would control over 70 percent of the U.S. market.
The White Paper maintains that an American-US Airways combination would occur against an industry backdrop marked by a dwindling fringe of low-cost carriers and increasing questions about whether Southwest any longer exerts significant competitive discipline. The report recommends that a U.S. Department of Justice investigation into the proposed merger should be informed by lessons from the effects of previous legacy mega-mergers (Delta-Northwest and United Continental) on fares, service, and choice.
The report also highlights a number of key issues for investigation, including whether it is realistic to assume that LCCs can "save the day" for consumers who could be harmed by mergers that can substantially reduce competition. The report also suggests that careful scrutiny of claimed cost savings from the merger is in order.
Indeed, while the American-US Airways merger may have been months in the making, the entire deal could be derailed if it fails to pass muster with federal regulatory authorities, who no doubt are going to look closely at an agreement forged by the two carriers.
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