Officials: AA, US Airways merger would present challenge
BY D.R. STEWART World Staff Writer
Sunday, April 22, 2012
4/22/12 at 7:39 AM
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A merger between bankrupt American Airlines and US Airways would create the largest airline in the world, preserve American Airlines jobs and provide cost-saving synergies of $1.8 billion to $2.5 billion within a year, industry analysts and union executives said.
But a proposed merger also would present daunting challenges, industry officials said, including winning the support of American's management and board of directors, combining two different aircraft fleets and route systems, and integrating the two airlines' union and nonunion employees.
"What on earth are they going to do with all those unions - the Transport Workers Union, the Association of Professional Flight Attendants, the Allied Pilots Association, which represents American Airlines pilots, and the Air Line Pilots Association, which represents (American's regional airline affiliate) American Eagle pilots," said Eric Smith, a Pittsburgh bankruptcy and aviation attorney.
"The challenge is to integrate the work forces. And US Airways to date hasn't been able to do that with its America West merger."
US Airways and America West Airlines merged in 2005.
Nearly all of America West's employees were junior to US Airways' workers, news reports show, which made merging airline seniority lists a nightmare.
Smith said he expects similar difficulties if American and US Airways merge.
"I think there are definite synergies there," Smith said. "I see a lot of symbiosis between hubs and routes. And they both have strategically located hubs. But the challenge is integrating the work force."
US Airways CEO Douglas Parker believes a merger would revitalize employees of both companies while creating additional business, boosting pay and benefits and saving jobs.
A significant feature of American parent AMR Corp.'s bankruptcy restructuring plan is cutting 14,000 jobs, court documents show.
Not so with an American/US Airways merger, Parker said.
"Our intention would be to put our two complementary networks together, maintaining both airlines' existing hubs and aircraft and create an airline that could compete successfully with United, Delta and other carriers within our industry," Parker said in an email to US Airways employees Friday. "A merged airline would provide competitive, industry-standard compensation and benefits, as well as improved job security and advancement opportunities for all employees of the combined airline.
"Most importantly, in American's stand-alone strategy, over 13,000 employees at American will lose their jobs. Our merger contemplates saving at least 6,200 of these positions. For the US Airways team, the agreements we have reached with the unions representing employees at American would also provide enhancements to the compensation and benefits currently in place (at US Airways)."
Bob Herbst, an airline industry analyst and founder of AirlineFinancials.com, has expected a merger between American and US Airways for nearly a year.
Without a merger, American and US Airways will face major challenges in attempting to compete with Delta Air Lines and the merged United Airlines/Continental Airlines, Herbst said.
"When comparing total revenue (includes regional affiliate income), the merged United and Delta are now 45 percent to 60 percent larger than American and significantly more than twice the size of US Airways," Herbst writes in his analysis "American Airlines and US Airways - Will They Fly Off Together?"
"Combining the revenues of American and US Airways would move the merged carriers to the top of the largest airline in the world list. Combining aircraft fleet sizes, merging American and US Airways would give them, by far, the largest fleet in the industry."
Merging the two airlines, Herbst said, would provide $500 million to $700 million in cost-saving synergies.
In addition, American, through the bankruptcy process, will reduce labor costs by $700 million to $800 million a year and capital costs by $300 million to $500 million per year, Herbst said.
A merged American/US Airways would be a stronger global competitor to United and Delta, regaining premium/business travelers and providing it with another $350 million per year, Herbst said.
"Total cost-saving synergies (equal) $1.8 billion to $2.5 billion accretive within 12 months of merger," Herbst said. "History shows a long list of once great airlines that failed. Each of those failed airlines had one thing in common. They all failed to remain competitive. It's the opinion of AirlineFinancials.com that American and US Airways must merge to remain long-term competitive."
Jake Dollarhide, CEO of Longbow Asset Management Co. in Tulsa, said US Airways' overtures to American's unions is like accumulating chips in a poker game.
"US Airways is building their case with the (unsecured) creditors committee that a merger with them is a superior strategy compared with AMR's emergence as a stand-alone airline," Dollarhide said.
Fred Russell, CEO of Fredric E. Russell Investment Management Co. of Tulsa, said years of labor/management strife at American has driven its unions to US Airways.
"Whether or not management at US Airways will treat them better than AMR management is not a concern," Russell said. "They just don't like AMR management."
In an email issued Saturday, Tulsa Metro Chamber president and CEO Mike Neal said: "We continue to monitor the progress of American Airline's restructuring under Chapter 11 of the bankruptcy code. While this process is difficult, it is necessary for American to emerge a viable company.
"Premature discussions of mergers with competing companies only serve as a hindrance to the significant progress being made by the negotiating teams. While any merger discussion must wait until the company emerges from bankruptcy proceedings, we are confident the best option for success of American Airlines is to emerge from bankruptcy protection reorganized as a strong, viable and independent company."
In the same email from the Tulsa Metro Chamber, Tulsa Mayor Dewey Bartlett said he remains hopeful that the end result will include the maximum number of American jobs in Tulsa.
"Local discussion affirms significant progress is being made between the negotiating teams," Bartlett said. "Consensual agreements between American and its unions will preserve the most jobs for Tulsa and Oklahoma. We are confident the company will emerge in a positive position to grow and continue investments in the Tulsa region."
Comparing airline fleets
Delta Air Lines: 707 aircraft
United Airlines: 701 aircraft
Southwest Airlines: 698
American Airlines: 608
US Airways: 340 aircraft
Combined American Airlines/
US Airways: 948 aircraft
Source: AirlineFinancials.com LLC
Original Print Headline: US Airways, AA merger has savings, challenges
D.R. Stewart 918-581-8451