American Airlines, US Airways to Merge?

CBS News is reporting that US Airways has effectively announced plans to take over beleaguered American Airlines, by filing an 8-K form with the Securities and Exchange Commission to begin the process of a merger. Per CBS, this is the “current report companies must file with the SEC to announce major events” to shareholders.

Merger: The First Step

However, as airline industry analyst Rick Seaney noted, “This is the first hurdle, but there are several more, and by no means is this race over.”

Listen as air travel analyst Rick Seaney has more details in this new, updated podcast:

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Statement from US Airways CEO

US Airways CEO Doug Parker also appeared to put the brakes on speculation that a merger was a flat-out done deal in this letter to employees, obtained by CBS, which reads in part:

“First of all, today’s news does not mean we have agreed to merge with American Airlines. It only means we have reached agreements with [three of American Airlines’ labor unions] on what their collective bargaining agreements would look like after a merger, and that they would like to work with us to make a merger a reality. To get to an actual merger, many more things must happen including gaining the support of AMR’s creditors, its management team and its Board of Directors. But this is obviously an important first step along that path and we are hopeful we can all work together to make this happen.”

Analysis: What an American/US Airway Merger Means for Passengers

Analyst Rick Seaney says that, if measured by “seat miles flown” a newly-merged American Airlines and US Airways entity would rank first among U.S carriers, just slightly ahead of Delta Air Lines.

However, the big issue for passengers about a potential American/US Airways merger – or indeed, any merger – is competition, and how the lack of it drives up airfare prices.

Said Seaney, “The FAA itself noted in a recent report that airline ticket prices were higher thanks to lack of competition through mergers – mergers that were approved by the feds. This potentially quadruples-down on the lack of competition over the past four years after mergers by Delta/Northwest, United/Continental and Southwest/AirTran. For consumers, the only saving grace is their ability to balk – stay home and not fly – when ticket prices get too high.”

Seaney sees another worrisome trend: “With potentially four mega-domestic carriers and a handful of smaller ones, is the airline industry getting to the point of being too big to fail just as we saw with the banks recently?” He adds that, “While the past few mergers have made the newly-minted combined carriers healthier in these difficult economic times with its corresponding higher fuel costs, it may not be enough for American to sort out decades of promises that couldn’t be kept.”

When asked if today’s news was a real first step down the path to merging, Seaney responded, “Real step? More like a leap by US Airways, and duck and cover by American.”

Statement from American Airlines Unions

The Dallas Morning News published a joint statement of support of a merger, issued by American’s three big labor unions – the 17,000 members of the Association of Professional Flight Attendants, the 10,000 members of the Allied Pilots Association and the 26,000 members of the Transport Workers Union. It reads in part:

“We have reached agreements on terms sheets for collective bargaining agreements that would govern the American Airlines employees of the merged airline with US Airways. Over the long term, the combined new airline would support greater job security and advancement opportunities for both American Airlines’ and US Airways’ employees that are far superior to those available to employees at either airline on a stand-alone basis.”

UPDATE: American Airlines’s Response

Analyst Seaney received a statement from American Airlines this morning; while it does not directly address a potential merger, it does touch on the labor situation. It reads, in part, as follows:

“We believe statements of non-binding support from union leaders for alternative proposals are no coincidence given the timing of the 1113 process [Editor’s note: this is part of the bankruptcy code “that allows companies to ask the court to reject and alter their collective bargaining agreements with unionized employees”]. These statements do not in any way alter the company’s commitment to pursue our business plan or our focus on moving steadily through the court supervised restructuring process to create a profitable, growing industry leader. For American’s outstanding employees and loyal customers, business continues on track, as we continue to provide the safe, reliable travel experience our customers expect.”

 

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Published: April 20, 2012