US Makes Formal Merger Proposal to AMR

Discussion in 'American Airlines | AAdvantage' started by DestinationDavid, Dec 7, 2012.  |  Print Topic

  1. DestinationDavid
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    U.S. Airways Group Inc. has made a formal merger proposal to American Airlines parent AMR Corp. and its creditors that could value the combined airline at around $8.5 billion, a person familiar with the situation said on Friday.

    Under the all-stock proposal US Airways made in mid-November at a meeting with AMR's unsecured creditors committee, the bankrupt airline's creditors would own 70 percent of the merged company and US Airways shareholders 30 percent, the person said.

    US Airways and AMR are negotiating toward a potential merger agreement that could come as soon as January, the person added, asking not to be named because the matter is not public.
     
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  2. malikguy

    malikguy Silver Member

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    What do you think this would mean for the airline(s) overall? Which name would remain intact and more importantly, which FF program?
     
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  3. DestinationDavid
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    It would be called American Airlines and the AAdvantage program would remain (in name, whether new rules crop up is unknown). US has already stated as much while discussing what a future airline would look like IF they merged.

    As for what would this mean for the airline overall? A complex, lengthy response would be needed that is currently being trumped by the Potbelly sandwich I just picked up. Sorry. :)
     
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  4. malikguy

    malikguy Silver Member

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    Mmmmmm, now I'm very hungry... Thanks David. ;)
     
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  5. HaveMilesWillTravel
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    HaveMilesWillTravel Gold Member

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    Get your priorities straight, David! Oh, wait, I think you did. :)
     
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  6. jbcarioca
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    jbcarioca Gold Member

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    Given the very close person relationships between the relevant CEO's and the limited disclosures that have already been made is is probable that, as David says, AA will be the survivor. OW will probably be the Alliance and US will probably formally be merged into AMR. Thus, given otehr tea leaves it's safe to imagine that AA Elites will be seeing fewer changes than will US ones.

    Speculating: I would not anticipate any major changes to the AAdvantage program, and Dividend Miles will probably just fold in. I would expect some serious fireworks on various union and merger integration issues. I'd also expect the new management to push even harder for cost containment.

    End of speculation...for the moment
     
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  7. ballardFlyer

    ballardFlyer Gold Member

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    AMR creditors please reject this! US and Doug Parker is not representing this accurately.

    AA doesn't need US's routes, planes, or the near duplicate hubs. AA needs to merge with AS. The west coast is the weak link domestically for AA. And then grow the high value markets domestically and rebuild an intl route network with new planes and OW partners.

    US adds nothing meaningful internationally and PHX is not much more strategic then SLC is for DL on the west coast. Both are inconvenient except for the O/D traffic.
     
  8. JetsettingEric
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    JetsettingEric Silver Member

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    ballardflyer - i wholeheartly disagree.

    Routes
    American has a nice spot in my heart, and I do like US a lot too. US has a very strong European network that would complement AA. AA's Latin America network would compliment US. The combined entity would remain weak in Asia. Domestically, DCA is a gem. The shuttle fills a missing link. CLT is a strong hub with strong O&D and is a strong addition to the AA network. Would CLT rival DFW? no way, but DFW nor MIA serves the US south very well. PHX - is it as impacted by weather as ORD or DFW? It's a great west coast hub, and in a true sense, unlike AA at LAX. PHL vs. JFK, PHL can serve connecting passengers very well, vs. JFK is slot controlled and local passengers prefer LGA. Routing O&D via LGA/JFK and connections via PHL make a ton of sense. Routewise, there will be some overlap and some fine tuning to get the most efficient routing, but very complimentary.

    Planes
    US has the better fleet. AA has a ton of planes on order, but right now, US is making money, partially because their planes are more fuel efficient. The A330s are fantastic across the Atlantic and have a top notch business class in it. The gigantic A320 fleet are efficient and relatively young. If US/AA were to merge, real value would be unlocked. Take the MD80s which have a low capital cost and relatively competitive in short haul routes. perfect planes for the Shuttle and very short routes along the east coast (LGA-PHL, BOS-PHL, PHL-DCA, etc)
     
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  9. JonNYC
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    JonNYC Silver Member

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    My personal speculation would differ from this-- I'd expect considerable changes to AAdvantage in the event of a merger (or even in the period leading up to a merger.)
     
  10. HaveMilesWillTravel
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    HaveMilesWillTravel Gold Member

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    IMO... as the choices for legacy fliers become fewer, the needs to maintain a competitive legacy FF program will be reduced.
     
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  11. daninstl

    daninstl Gold Member

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    I don't think this will be n time to help my 767 equipment improve on my flight to Rome in January :)

    Seriously I seems a little heavy for the creditors to own 70% but I'm ha informed on the value or debt. Could be interesting.
     
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  12. basiface

    basiface Silver Member

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    This would only leave us with three and a half major U.S. based airlines (SW is the half). Less competition will lead to higher prices for me. That's what I care about, not how shiny and clean the new AA will be. Bigger is not always better...look at how many folk are complaining about the new UA
     
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  13. edekba

    edekba Gold Member

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    I think you forgot the .25 ? (Jetblue/Virgin) =)
     
  14. JetsettingEric
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    JetsettingEric Silver Member

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    This really depends on who is considered a creditor. Think about all the AA debt secured by Aircraft and Slots. Depending on how the EETCs who have extra protection from the bankruptcy code under 1110 are counted, this doesn't seem from my armchair CEO point of view, too "off".

    AA is the bigger airline with more secured assets.
     
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  15. HeathrowGuy
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    HeathrowGuy Gold Member

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    AMR gets little of value from a merger with US Airways, and is better off building strengths at existing hubs rather than tosing a billion dollars down the drain to merge and integrate a carrier that operates at a substantial revenue disadvantage to legacy peers. As to the points mentioned here:

    1. US has a sizeable TATL network, but it is NOT very strong, by any means. For starters, look at how much of that flying is purely seasonal, reliant upon tourist traffic. Second, US has been repeatedly refused acceptance into the Star A++ JV because including its flights in the mix would result in substantial revenue dilution for the other partners. And third, note that US has not made any plans to update its TATL 757s/767s to a competitive product in either cabin.

    2. AA's Latin America network is best grown in the cities where it is currently concentrated -- MIA, JFK, and DFW. AA has room to expand its flying at all three of those hubs.

    3. PHX isn't a great hub today (in part because there's too much WN flying there), and would likely be a financially disastrous hub under the merged carrier's cost structure. PHX also does nothing to further AA's efforts to expand Transpacific flying.

    4. JFK can serve connecting passengers very well as soon as AA firmly commits to building out its hub facility there to its full potential. Slots will not pose a major issue at JFK, since the only timeframes that ae truly congested are the departure/arrival banks for TATL flights.

    5. US' fleet is OK for what it does -- and with the possible exception of the A330s, does little for the route network of American. US' 767s -- and many of its 757s -- are in need of retirement. Most of the Airbus equipment is young, but then again, a spend of hundreds of millions of dollars, over several years, would be required to make the US Airbus fleet match/mimic the planned AA Airbus fleet. And Delta has been there, done that with using MD-80s on the Shuttle, and quickly discovered that they're too fuel-inefficient for very short runs.

    And on top of all this, airline mergers bring about 1-2 years of operational infirmity and confusion all the way from the management ranks to the front-line employees, and that's in a best case scenario (and neither AA nor US management have a good track record in making mergers work well). Be careful what you wish for.
     
  16. kansaskeith

    kansaskeith Gold Member

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    An only slightly on-topic reminiscence.

    Ah, consolidation. Christmas, 1983 - 29 years ago - and my parents, who often flew AA, were preparing to visit ICT from Southern Cal on bargain tickets Dad had bought somewhere. Winter weather in the Plains was awful, and my mother freaked out the day before travel, fearing among other things planes would be grounded and they'd be stranded. So she called AA for advice. The phone agent was baffled until my mother at the agent's request started reading from the then-paper tickets. "Ma'am, what does it say upper left, 'issued by?'" Mom said, "America West Airlines, Inc." The agent said,"Ma'am, is that 'America WEST' rather than 'American?'" When mother affirmed, the AA agent replied, "That's not us, and in fact I've never heard of 'em." Well, that was America West's first winter (and it got them to ICT in the snow just fine). But now, that airline AA's lady had never heard of - which since has become known as US Airways - looks like it may be American's new owner!
     
  17. Mike Reed

    Mike Reed Gold Member

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    Well, that and the entire southeastern US. At least having a hub in CLT would start to help things there. Connecting via MIA, LGA or DFW between two cities in the southeast absolutely sucks.

    AA would keep LAX and shutter PHX. While there's few things new, there are enough routes to Europe from CLT/PHL to make things interesting, especially if AA acquired the slots and moved the PHL traffic to CLT and LGA. Directs to Greece are one interesting add, as are the slots at TLV.
     
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  18. Mike Reed

    Mike Reed Gold Member

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    Here's the better question... would my purchased US Air miles count towards my AA *million miler* status (remember, AA used to count these as well prior to Dec 2011). :)
     
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  19. JetsettingEric
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    JetsettingEric Silver Member

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    US Competes just fine with WN. Take a look at PHL. WN decided to leave because it couldn't compete. The cost side, US has down. US operates A321s with 183 seats that have a much better CASM than a 137 seat 737-700. On a CASM side - UA and DL's fleet have 757-300s which are amazing on the CASM side, while AA relies on the 737-800. AA's current cost structure wouldn't work in PHX - but post-bankruptcy, I would expect them to be much lower. What PHX provides UA is a decent connecting hub in the west. SEA is not very convenient for most of so-cal. Many despise LAX and prefer SNA. A combined carrier can have a large LAX presence for feeding international flights, and PHX for those that need to fly SNA to OAK.




    New York is a big problem for AA. You have UA at EWR with a true hub. In NYC proper - you have DL trying to "win" New York, especially post slot swap and you have B6 in the domestic markets which AA used to dominate, and WN trying to break in. DL flies to more major business markets from LGA than does AA. For all the in-perimeter flights, no one wants to trek out to JFK. The only reason for a new yorker to fly out of JFK are: Going beyond perimeter domestically (SFO/LAX/SEA/LAS, etc), long-haul international or to fly B6. Building a hub at JFK will be at a substantial revenue disadvantage and slots are exactly the problem in feeding their long haul international flights. This is why PHL makes sense. If you have transatlantic capacity from BOS, BDL, ALB, YUL, YYZ, DCA, etc, right now with AA you need to backtrack to ORD or connect to one of the JFK feeder flights. It makes much more sense to connect via PHL where you have the capacity for many more domestic connections.

    The same thing for American's 762 and 757 fleet. Then add on all the MD80s that need retirement. The US 767s are primarily used for secondary Europe seasonal traffic and then for cargo capacity to the Caribbean during the off season. The AA airbus fleet has yet to arrive, so i don't see why there are so many costs involved. There will be a subset of AAs A321s replacing the 762s for the JFK-LAX/SFO, but you don't need every A321 to be in that same configuration (UA and the p.s. subfleet works just the same way).

    For the DL shuttle, it was just too much capacity for them. They've downgraded to smaller aircraft, and after winning a few larger contracts have started upgauging again. The value add is, which burns more fuel, an MD80 flying back and forth between ORD and LAX and an A319 flying back and forth between DCA and LGA. If it's more efficient for the MD80 to do the shuttle route and the A319 to fly from ORD to LAX, the combined carrier can do that swap, individually, they cannot.

    US has 10 762s, AA has 14. US has 24 757s and AA has 104. US has more A320 series aircraft than AA has 738s. The combined airline will likely have less flying that the current two combined. The first aircraft to go will likely be the fuel hogs and AA has more of those than US.
     
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  20. kansaskeith

    kansaskeith Gold Member

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    Hmmmm. Probably would be the subject of tedious AA - US 'implementation team' meetings once the merger neared fruition. Among other things would probably depend on how US stored historical totals in its data base, whether it archived individual Tx or just lumps, etc. I wouldn't count on it, though I do know when AA bought TW, AAdvantage counted everything I had ever earned from TW, even bonus stuff TW wouldn't count that way in its own system.
     
  21. Travel2Food
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    Travel2Food Silver Member

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    And I'd agree wholeheartedly.

    Given that UA and DL have substantially devalued their programs, and B6 & WN are not competitive, there is simply no need for AA to maintain the kind of benefits it does now. In the spirit of cost cutting (and revenue generation), there will be a push to monetize the program any way they can. If we take DL as an example, the number of SWUs has been reduced, they are only applicable on higher fares, award seats are the least available in the industry at low levels (though AA's current inventory is much harder than it used to be), and on-board upgrades are a real challenge. DL sells miles - lots and lots of miles - but makes them hard to redeem.

    AA needs to hold on to folks for now, but once a merger is done, and capacity is further reduced, they (like DL and UA) can work to "fire" unprofitable customers... those that qualify on low-value fares... and restrict benefits. I would bet that the upgrade programs get devalued to raise revenue, among other things. And I wouldn't be surprised if they didn't look at selling the program to a third party (like Amtrak's program operates).
     
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  22. DestinationDavid
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    Ahhhh, there's nothing I love more than armchair airline CEO fights, let the games begin! :D

    [​IMG]
     
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  23. Mike Reed

    Mike Reed Gold Member

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    The worst part about this for me?

    I just bought 200K US miles with the intention of booking a specific trip, but I can't book it until the end of January (330 days out). January 30th, to be exact.

    I know programs won't change by then, but given how far out I'm booking, routings, times and equipment could. <sigh>
     
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  24. Liucoke

    Liucoke Silver Member

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    Irrespective of the effects on the ff program, we'll almost certainly see negative effects on fares and other downgrades as consumers. Time to start lobbying the DoJ now, using evidence of fare hikes from lack of competition caused by previous mergers?
     
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  25. kansaskeith

    kansaskeith Gold Member

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    YMMV, but my guess is that you'll be fine. Even if they come out with something in writing by January, it still has to get D.O.T. and D.O.J. approval, and my guess is the airlines out of fear of anti-trust won't dicker with routings, times and equipment until they get it. And with the Fiscal Cliff, Debt Ceiling and all, those federal agencies - which always take their time- are unlikely to be setting speed records in January. UA and CO didn't dicker that early , and then there are WN and FL which long after federal approval came are still implementing changes to routings and equipment at the speed of a turtle on Ambien (though finally now that is happening). Of course, as I know you are aware, once you get it booked on January 30 you'll be somewhat protected on routings, though not necessarily times and equipment.
     
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