Monday, April 23, 2012

American Airlines Merger with US Airways

By Sarfaraz A.K.

US Airways group and American Airlines, with the backing of three unions and 55,000 employees, are pushing hard for a merger. Considering the burden of bankruptcy on American Airlines and rising competition from United, Delta and other regional carriers, this is an excellent opportunity for both organizations to merge their businesses for a successful long term operation.

US Airways CEO Mr Doug Parker thinks that this is a “unique opportunity” which shouldn’t be ignored while AA chief executive Tom Hourton considers this as the best option for American. The company has now reported a net loss of $1.7 billion for the first quarter of 2012.

Things were looking bleak for AA and its employees after the bankruptcy news. Almost 13,000 union job and 1200 non-union job cuts were planned with further cuts to be made in labor costs to keep AA operational. Furthermore, the company had also decided to slash all the agreements signed with the unions over salary, benefits and work rules instead new rules were to be imposed by the top management.

According to Mr Parker, the merger can save 6,200 union jobs and potentially create a market leader in East Coast and Midwest. The new airline will be called the “American”. It would be headquartered near Dallas/Fort Worth International Airport.

Apparently US Airways, which is in a much better financial position than American, is more eager about the merger than the already bankrupt and $1.7billion-loss-reporter American Airlines. The three AA unions, Allied Pilots Association, Association of Professional Flight Attendants and Transport Workers Union have already signed agreements on collective bargaining terms with US Airways for pilots, flight attendants and mechanics.

American Airlines and its workers 

AA has a history of rough relationship with its workers who are fed up with their management and their policies. Allied Pilots Association in a letter to pilots said on Friday, ““Working with US Airways, APA was able to achieve in just over a week far more than we had been able to achieve in more than five years of trying to bargain with AMR management,”. Laura Glading, President of Association of Professional Flight Attendants said that the merger agreement “puts flight attendants in a far better position than any proposal American Airlines management has ever made.”

Meanwhile AA is still discussing the terms with its parent company AMR Corporation. The company is more interested in the bankruptcy court proceedings than the merger.

There are several things that need to take place before the merger becomes a reality. US Airways would need the support of American Airlines’ creditors, board of directors as well as AMR Corporation.

Some questions regarding the merger

We have witnessed many failed airline mergers around the world.

The old USAir acquisition of Piedmont and Pacific Southwest eventually lead to the downfall of these successful companies and ended up with hundreds of job losses.

The news of this merger also raises some interesting questions.

  1. Will this merger make the industry less competitive?
  2. Will this merger make AA even less productive than it currently is? If anything like this happens then the burden of supporting these failing airlines would eventually fall on tax payers, ordinary Americans.
  3. If the merger doesn't happen then AA, owing to its billions of losses, would still require government (hence taxpayers) support to operate on a daily basis.
  4. Would it be wiser if the government stops subsidizing and lets AA liquidate? Thousands of people will lose their jobs, who will then bear the economic and social cost?

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