When American Airlines went into bankruptcy a few months ago there was immediate speculation that the carrier, once the largest in the world but now smaller than both United and Delta, would lash up with either Delta or US Airways. American executives said, and still say, they intend to remain independent, but that never stopped speculation. The question is, how much is there to the speculation? Do we know any more now than we did in the initial round of wild guessing by experts?
After weeks of time to consult their sources inside these airlines, the industry watchers appear to have decided that the Delta scenario poses insuperable antitrust issues, though Delta is known to have hired a merger-and-acquisitions consultant to advise it, and I've read several interesting speculative descriptions of how Delta might overcome antitrust issues by shedding gates here and there.
What has become more intriguing lately is the discussion of an American-US Airways merger.
Doug Parker was CEO of successful discount carrier America West when he acquired US Airways, keeping the latter name but effectively taking it over with his Arizona-based management team. Parker has proven better at closing the deal then executing the operational merger, with pilots from the two component airlines still fighting over seniority rosters and contract terms, years after the corporate merger took place. This will sound familiar to American Airlines watchers, since American had the same issues after swallowing up TWA and never really solved them.
Parker also seems to think he's going to buy American and put his team in charge, and the reaction of American's management team is roughly what you would guess. Given these negative factors, and the fact that the bankruptcy court seems willing to follow its usual course of letting a bankrupt company's existing management retain exclusive right to develop a reorganization plan, it has been easy to dismiss the merger talk until now.
A new report in the Financial Times of London has me rethinking it. The report looks at a US Airways-American merger from a global point of view, ignoring the issue of who would run it, and lays out a case that actually makes some sense.
The FT take on it starts from the fact that there are three major global airline alliances, led by United, Delta and American. The American alliance includes British Airways. For a variety of reasons, many international airlines that are allies of American will not want it to merge with Delta, but they would be pleased to see American bulk up its U.S. domestic network, currently only the fourth largest, by merging with US Airways.
For other members of American's alliance, the main value of being in the alliance is code share access to American's domestic network, so the size and reach of it matters.
American has lately undertaken a strategy of beefing up in five key U.S. hubs while cutting back everywhere else. It canceled a perfectly good daily flight from SFO to Honolulu because San Francisco isn't one of its five chosen metro areas. Los Angeles is. Another is New York. But in New York there are some serious constraints on expansion, and acquiring US Airways, or vice versa, would solve that.
Don't expect any kind of deal before American exits Chapter 11, but after that it will be interesting to see if American and US Airways can think of a merger deal both executive teams and both sets of unions can stand.