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AA & US Begin Merger Talks Part 2  
User currently offlineYankeesFan From United States of America, joined Aug 2012, 216 posts, RR: 0
Posted (2 years 2 months 2 weeks 2 days 22 hours ago) and read 8353 times:

Continue discussion from AA & US Begin Merger Talks (by MountainFlyer Aug 31 2012 in Civil Aviation) here.

Enjoy!


I hope you stand by your promises Obama. I will be really mad if you don't
31 replies: All unread, showing first 25:
 
User currently offlinejustplanenutz From United States of America, joined Feb 2006, 546 posts, RR: 1
Reply 1, posted (2 years 2 months 2 weeks 2 days 7 hours ago) and read 8096 times:

Honest question: from AA's creditors perspective, what is to be gained from merging prior to AA exiting BK? US and AA are the last two still at the merger dance, so what is the rush?

I understand that for US:
1) BK is US's best chance to be the acquirer rather than the acquired
2) Getting agreements with AA's unions when AA cannot is the best strategy to effect #1
3) AA's unions want the best deal they can get, which is with US due to #1 & 2

But from AA's creditors perspective:
1) Assets rarely sell at a premium during BK
2) No US liabilities can be shed through AA's BK
3) There appear to be few if any AA liabilities that US would want AA to shed in BK that it is not already

So, wouldn't a deal like the NW/CO Golden Share make more sense for AA:
1) US minority equity stake in AA, and possibly AA in US (with approval rights over any mergers)
2) US OW membership
3) Broad code-sharing agreement (under the APA term sheet, AA can place its code on pretty much the entire US network)
4) Reciprocal FF agreements
5) AA could then focus on the substantial restructuring issues it faces and later pursue the merger on its own terms
6) US could focus on completing the HP merger, fully integrating its own workforce before attempting another.

The only arguments I can see for a merger now rather than later are:
1) Labor might burn AA down by then
2) Parker is the only choice as CEO (not just better than Horton, who the creditors can replace if they want to)

What am I missing?

[Edited 2012-09-10 07:35:10]

User currently offlineckfred From United States of America, joined Apr 2001, 5296 posts, RR: 1
Reply 2, posted (2 years 2 months 2 weeks 2 days 6 hours ago) and read 8095 times:

Basically, the unions no longer trust AA management, and they see Parker as someone who will correct the problems that have plagued AA for the last 10 years or so.

Here's is what I don't understand. A know a few AA employees, current and retired. They had a love-hate relationship with Bob Crandall. He could irritate the employees to no end, but no one could argue that AA was an innovative carrier that expanded and made money.

On the other hand, every CEO since (Don Carty, Gerard Arpey, and Tom Horton) has not been been as successful as Crandall, despite the fact that they rose through the ranks at AA, when Crandall was CEO. A business school professor would say that some corporate cultures create people who can run the business, or other businesses.

McDonald's has had several very good CEOs who have come up through the ranks. Some of them litterally started working in a store after school, flipping burgers. GE also has a reputation for grooming managerial talent that either works their way up the ladder at GE or moves on to successful careers at other companies.

So, if AA hasn't had luck with CEOs who came up through the ranks, why would they want another CEO who got his start at AA, namely Doug Parker?

If the pilots wind up with some variation of the T/A they voted down, they will have 13.5% of the stock. The F/As will get 3%. I'm assuming that the TWU work groups are getting some stock. Together they will have close to 20% of the new AMR.

You have to assume their are creditors who aren't fans of Horton, but aren't looking to merge with US, either in BK or immediately upon exit. They would probably be willing to work with the unions to set up a board of directors who will replace Horton and his senior management team with a new team of executives with no history at AMR/AA.

Then AA can get its fresh start before looking at a possible merger with US or anyone else.


User currently offlinePHX787 From Japan, joined Mar 2012, 7851 posts, RR: 19
Reply 3, posted (2 years 2 months 2 weeks 2 days 4 hours ago) and read 8101 times:

Quoting justplanenutz (Reply 1):
2) No US liabilities can be shed through AA's BK

Woah would this mean PHX?

Quoting justplanenutz (Reply 1):
2) Parker is the only choice as CEO (not just better than Horton, who the creditors can replace if they want to)

Here's the thing- can the creditors replace Parker?
Does AA's management want Parker running the show?
What do the unions think of Parker?
What about the current US employees, unions, etc think of DP?

(these are questions I have, and they're not rhetorical)



我思うゆえに我あり。(Jap. 'I think, therefore I am.')
User currently offlinejustplanenutz From United States of America, joined Feb 2006, 546 posts, RR: 1
Reply 4, posted (2 years 2 months 2 weeks 2 days 4 hours ago) and read 8095 times:

Quoting ckfred (Reply 2):
Basically, the unions no longer trust AA management, and they see Parker as someone who will correct the problems that have plagued AA for the last 10 years or so.

I guess I am a cynic that anything would be different with AA's unions and Parker. Parker knows the unions are his best route to gain control of AA and the unions see Parker as a way to mitigate their losses from BK--it is a marriage of convenience. IMO, it would be a very short honeymoon.

Quoting ckfred (Reply 2):
So, if AA hasn't had luck with CEOs who came up through the ranks, why would they want another CEO who got his start at AA, namely Doug Parker?

And, if the AA's owners (currently its creditors) want a new CEO, they don't need a merger to find one. Head hunters are a lot cheaper than M&A lawyers.

Quoting ckfred (Reply 2):
The F/As will get 3%.

I read the APFA FAQ on the stock grant, and they plan to distribute it immediately to their members, many of whom likely will quickly sell. Presuming the other unions do as well, it doesn't seem like the equity will be much of a bargaining chip post-BK.


User currently offlineiFlyLOTs From United States of America, joined Apr 2012, 492 posts, RR: 0
Reply 5, posted (2 years 2 months 2 weeks 2 days 4 hours ago) and read 8094 times:

I think that I'm with the small group of people who think that post BK AA should get an all new CEO, someone from another airline (WN, B6, VX, AS or HA). They need someone who has ambition, and comes from a position in an airline that
1. Knows how to treat their customers well and
2. Knows how to run a still profitable airline.

[Edited 2012-09-10 10:49:14]


"...stay hungry, stay foolish" -Steve Jobs
User currently offlinemilesrich From United States of America, joined Jul 2003, 2009 posts, RR: 6
Reply 6, posted (2 years 2 months 2 weeks 2 days 4 hours ago) and read 8095 times:

Quoting justplanenutz (Reply 1):
So, wouldn't a deal like the NW/CO Golden Share make more sense for AA:

Yes, that worked really well for both Northwest and Continental didn't it.


User currently offlinejustplanenutz From United States of America, joined Feb 2006, 546 posts, RR: 1
Reply 7, posted (2 years 2 months 2 weeks 2 days 3 hours ago) and read 8094 times:

Quoting PHX787 (Reply 3):
Woah would this mean PHX?

While the merged airline could certainly reduce/close its hub there, but it wouldn't be able to dump lease obligations the way AA is during BK.
Quoting PHX787 (Reply 3):
Here's the thing- can the creditors replace Parker?

AA's creditors could demand anyone as a CEO as a condition to accept a merger, but they can't do anything to Parker short of that. If he is AA CEO post/BK-Merger, stockholders can fire him, though that is a difficult process often.
Quoting PHX787 (Reply 3):
Does AA's management want Parker running the show?

Unlikely, though Horton did move on after from AT&T after arranging the SW Bell merger. I guess how golden the parachute might be would determine that.
Quoting PHX787 (Reply 3):
What do the unions think of Parker?

See above.
Quoting PHX787 (Reply 3):
What about the current US employees, unions, etc think of DP?

This I don't really know. The old US employees should think he walks on water--they were days/weeks from liquidation when HP rode to the rescue. Yet, they are the ones opposing integration.


User currently offlinejustplanenutz From United States of America, joined Feb 2006, 546 posts, RR: 1
Reply 8, posted (2 years 2 months 2 weeks 2 days 3 hours ago) and read 8094 times:

Quoting milesrich (Reply 6):
Yes, that worked really well for both Northwest and Continental didn't it.

It worked fine for NW, didn't it? They only lost their golden share in CO when they merged with DL. Continental never had a golden share of NW's.


User currently offlinePHX787 From Japan, joined Mar 2012, 7851 posts, RR: 19
Reply 9, posted (2 years 2 months 2 weeks 2 days 3 hours ago) and read 8094 times:

Quoting justplanenutz (Reply 7):
While the merged airline could certainly reduce/close its hub there, but it wouldn't be able to dump lease obligations the way AA is during BK.

Thanks for the response.

So in the worse case scenario, PHX could end up having shells of terminals like CVG due to lease obligations   



我思うゆえに我あり。(Jap. 'I think, therefore I am.')
User currently offlineOzarkD9S From United States of America, joined Oct 2001, 5197 posts, RR: 21
Reply 10, posted (2 years 2 months 2 weeks 2 days 2 hours ago) and read 8097 times:

If US is the acquirer, they keep their beyond perimeter slots at DCA for PHX and LAS. If AA acquires US, those go back to the pool with no guarantee they are allocated to the new AA. Hardly a major sticking point but still food for thought, two major operations forced back to one-stop/connection status.


Next up, STL-ATL-MSY-ATL-STL
User currently offlinedelta88 From United States of America, joined May 2009, 88 posts, RR: 0
Reply 11, posted (2 years 2 months 2 weeks 2 days 2 hours ago) and read 8098 times:
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I honestly hope that if U.S decides to takeover AA, maybe this will turn out like Air France/KLM or British Airways/Iberia, where both Airlines, liveries, unions, ETC are kept but one Company owns both, i mean U.S Airways would be able to gain in Europe with AALs vast fleet of long haul aircraft. Its only a wild Guess, but i think by the end of the year They will be One Airline, question is who owns it and does AA have a chance to stay its own


707,717,727,738,744,752,762ER,763ER,772ER,MD82,MD-83,MD-88, DC-9-10,DC-10-10,A320
User currently offlineAA94 From United States of America, joined Aug 2011, 605 posts, RR: 2
Reply 12, posted (2 years 2 months 2 weeks 2 days 1 hour ago) and read 8098 times:

Quoting justplanenutz (Reply 1):

  

Exactly. The deal, at present, significantly benefits only one side of the entity: US.

AA is in bankruptcy. It happens. If they emerge from BK and things tank again, or they aren't able to correct their financial problems, then I see the US deal becoming more of a possibility. But every legacy in this country has gone through bankruptcy. That doesn't bring about a need to merge immediately.

Quoting justplanenutz (Reply 4):
I guess I am a cynic that anything would be different with AA's unions and Parker. Parker knows the unions are his best route to gain control of AA and the unions see Parker as a way to mitigate their losses from BK--it is a marriage of convenience. IMO, it would be a very short honeymoon.

  

Parker is trying to find the easiest way to get access to AA, and the disgruntled employee unions have provided him with a perfect avenue in.

Quoting justplanenutz (Reply 4):
And, if the AA's owners (currently its creditors) want a new CEO, they don't need a merger to find one. Head hunters are a lot cheaper than M&A lawyers.

  

At present, US needs AA a lot more than AA needs US, and I'm sure that both Parker and Horton both recognize that.



Choose a challenge over competence / Eleanor Roosevelt
User currently offlineElGrandeB777CA From United States of America, joined Feb 2012, 9 posts, RR: 0
Reply 13, posted (2 years 2 months 2 weeks 2 days 1 hour ago) and read 8096 times:

USAir is looking at the liquidity of the assets of AMR in the future to keep positive cash flow over time...Not the routes or operation...When has flying airplanes with passengers ever made money for an airline...EASTERN, PAN AM, TWA, CONTINENTAL, PIEDMONT, NORTHWEST...And others...Part of the bottom line is who has the most cash to burn the longest will survive...American waited too long to file chapter 11...It's not if you can outrun the bear...Just outrun the others that the bear is chasing...

User currently offlinesilentbob From United States of America, joined Aug 2006, 2151 posts, RR: 1
Reply 14, posted (2 years 2 months 2 weeks 1 day 23 hours ago) and read 7413 times:

Quoting justplanenutz (Reply 1):
Honest question: from AA's creditors perspective, what is to be gained from merging prior to AA exiting BK? US and AA are the last two still at the merger dance, so what is the rush?

The sooner you implement the "final" long term strategies, the better off the company will be. If the plan is for US to acquire, then doing so now will result in benefits being realized more quickly. You also have major changes going on now, far better to make them all at once than some now and some 12-18 months from now.

Quoting delta88 (Reply 11):
I honestly hope that if U.S decides to takeover AA, maybe this will turn out like Air France/KLM or British Airways/Iberia, where both Airlines, liveries, unions, ETC are kept but one Company owns both,

That doesn't make any sense financially. If it wasn't for the fact that AF and KLM are from different countries, only one of the names would be in use at this point.

Quoting justplanenutz (Reply 7):
This I don't really know. The old US employees should think he walks on water--they were days/weeks from liquidation when HP rode to the rescue. Yet, they are the ones opposing integration.

There is am amazing amount of amnesia and delusional thinking among those employees. Many still think that someone else would have swooped in at the last minute or that they would have managed to turn things around.


User currently offlineHPRamper From United States of America, joined May 2005, 4102 posts, RR: 8
Reply 15, posted (2 years 2 months 2 weeks 1 day 21 hours ago) and read 6555 times:

Quoting OzarkD9S (Reply 10):
If US is the acquirer, they keep their beyond perimeter slots at DCA for PHX and LAS. If AA acquires US, those go back to the pool with no guarantee they are allocated to the new AA. Hardly a major sticking point but still food for thought, two major operations forced back to one-stop/connection status.

Didn't HP keep the US certificate?

Quoting silentbob (Reply 14):
There is am amazing amount of amnesia and delusional thinking among those employees. Many still think that someone else would have swooped in at the last minute or that they would have managed to turn things around.

  
The situation at US then made the AA situation now look like rainbows and daisies. Nobody else wanted any part of US and without an acquisition they had a zero point zero chance of making it out of bk.


User currently offlineckfred From United States of America, joined Apr 2001, 5296 posts, RR: 1
Reply 16, posted (2 years 2 months 1 week 5 days 23 hours ago) and read 6007 times:

My wife is flying UA today, LAS-ORD, and let me tell you what happened. I sent her a text, after I saw that her flight was delayed, because the inbound flight from EWR had gone tech.

Then, they decided to have an inbound flight from SFO work the departure to ORD, while the inbound flight from EWR would work a later departure to ORD.

So, her 2:25 departure was pushed back to 3:40.

Then, around 1:30 PT, the 3:40 departure was pushed back to 6:30. I looked at the UA web site and the LAS web site and couldn't see any problems with the arrival from SFO.

Twenty minutes later, they reposted her departure back to 3:40. My wife asked an agent why the changing of schedules, and he blamed the computer. He said that the merging of systems with CO was still not "bug-free".

And you AA employees want to go through this situation, or even worse, with US?

My has decided that, despite her company requiring her to travel on UA, she will just book AA and not submit the ticket on her expense report. That's how fed up she is with UA, even though she hasn't had a business trip in more than 2 years.

If she's this irked with UA, think how mad people will be with AA, after US screws up trying to get everything to work as one carrer.

I would rather have Horton mismanaging AA and irritating the employees than Parker screwing up AA and dragging it down to US's level.

Just a bit of venting.


User currently offlineHPRamper From United States of America, joined May 2005, 4102 posts, RR: 8
Reply 17, posted (2 years 2 months 1 week 5 days 21 hours ago) and read 5795 times:

Quoting ckfred (Reply 16):
If she's this irked with UA, think how mad people will be with AA, after US screws up trying to get everything to work as one carrer.

I would rather have Horton mismanaging AA and irritating the employees than Parker screwing up AA and dragging it down to US's level.

Just a bit of venting.

It happens with basically every airline merger. I don't see why AA and US need to be singled out for a vent like that especially as a result of an anecdotal experience with UA/CO.

You are saying US will screw up a combined carrier (a guess) and saying what AA is doing to employees is "irritating" them. Understatement of the year there.


User currently offlinecrj900lr From United States of America, joined Mar 2011, 382 posts, RR: 0
Reply 18, posted (2 years 2 months 1 week 5 days 20 hours ago) and read 5711 times:

Quoting ckfred (Reply 16):
And you AA employees want to go through this situation, or even worse, with US?


If she's this irked with UA, think how mad people will be with AA, after US screws up trying to get everything to work as one carrer.

I would rather have Horton mismanaging AA and irritating the employees than Parker screwing up AA and dragging it down to US's level.

So your 100% sure that it is going to happen like this huh? You may want to do some research before gaurenteeing something like this.


User currently offlinedcann40 From United States of America, joined Sep 2012, 303 posts, RR: 0
Reply 19, posted (2 years 2 months 1 week 5 days 20 hours ago) and read 5654 times:

It might be appropriate for me to remind everyone here that AA, unlike every other airline that entered bankruptcy proceedings, did not need debtor-in-possession financing due to the amount of cash it had on hand.

AA had its reasons for going into bankruptcy, shedding contracts and getting rid of leases are two of them, but its financial situation was nowhere near as dire as the other legacy carriers that preceded it into bankruptcy proceedings.


User currently offlineTWA85 From United States of America, joined Feb 2012, 225 posts, RR: 0
Reply 20, posted (2 years 2 months 1 week 5 days 3 hours ago) and read 5310 times:

What are the odd of this merger actually happening now that AA has obtained consensual agreements with the TWU and APFA and the BK judge has approved AA's 1113c term sheet? It appears that when the APFA and TWU ratified their TA's, they lost the ability pressure AA into merging with another carrier. Also now that the BK judge has approved AA's 1113c term sheet, US will most likely undercut the terms of the term sheet in order to make a merger offer more attractive than AA's stand alone plan. Arguing the need for AA to merge with US to be competitive with UA and DL is becoming much harder now, as AA is already a revenue leader and their costs are continuing to come more in line with DL and UA.

User currently offlineHPRamper From United States of America, joined May 2005, 4102 posts, RR: 8
Reply 21, posted (2 years 2 months 1 week 5 days 2 hours ago) and read 5263 times:

Quoting TWA85 (Reply 20):
What are the odd of this merger actually happening now that AA has obtained consensual agreements with the TWU and APFA and the BK judge has approved AA's 1113c term sheet?

US/Parker probably can no longer promise to stand by their agreed-upon terms with the unions. I feel that the 1113c proceedings have hurt the merger chances, while at the same time creating an even more toxic environment at AA at least among the pilot group. US may be better off just keeping their distance now for a while.


User currently offlineByrdluvs747 From United States of America, joined Jul 2004, 2424 posts, RR: 1
Reply 22, posted (2 years 2 months 1 week 4 days 16 hours ago) and read 4994 times:

Quoting TWA85 (Reply 20):
It appears that when the APFA and TWU ratified their TA's, they lost the ability pressure AA into merging with another carrier.

Thats something I'm not clear on. Are the FA and MX unions now legally bound to approve AA's BK emergence plan when voted on by the UCC? Can they turn around and vote no even though approving their contract?



The 747: The hands who designed it were guided by god.
User currently offlineAAplat4life From United States of America, joined Jun 2011, 198 posts, RR: 0
Reply 23, posted (2 years 2 months 1 week 4 days 9 hours ago) and read 4819 times:

Quoting HPRamper (Reply 21):
I feel that the 1113c proceedings have hurt the merger chances, while at the same time creating an even more toxic environment at AA at least among the pilot group. US may be better off just keeping their distance now for a while.

At this point US has agreed not to do any further negotiations with the AA employees. But from the perspective of a reorganization, a merger would improve the chances of better labor relations with the pilots. Of course, there is no guarantee.

The pilots will have a 13% stake in a reorganization AMR, but only if they reach a consensual contract. This could be worth about $1B. They now have a game of chicken to play: are the pilots going to give this up by having a contract imposed on them because they oppose reorganization without a merger or are the creditors going to approve a reorganization without a merger and proceed with an ownership interest in AMR with a very, very angry group of pilots. Assuming that the merger can be done on financial terms favorable to the pilots, I think that is the way forward.


User currently offlinedcann40 From United States of America, joined Sep 2012, 303 posts, RR: 0
Reply 24, posted (2 years 2 months 1 week 4 days 3 hours ago) and read 4552 times:

Quoting TWA85 (Reply 20):
What are the odd of this merger actually happening now that AA has obtained consensual agreements with the TWU and APFA and the BK judge has approved AA's 1113c term sheet?


About the same as prior. Zero. Unless AA decides to become te acquirer.


25 rj777 : I guess this is gonna be another one of those let's just wait and see what happens kind of scenarios.
26 TWA85 : Are there any new updates? Do the airlines plan to begin actual merger discussions anytime soon?
27 Bobloblaw : They never did Theyll hate him within 12 months Excellent point How about a nonairline person? Creditors can demand anything they want, doesnt mean t
28 silentbob : I think the airline business is so different that you would need to be very careful bringing someone without airline experience. The current MBA phil
29 iFlyLOTs : Maybe, but I was thinking someone from a B6 or WN background. Someone that hasn't run the airline, but has been high up in the airline. Maybe someone
30 Bobloblaw : The problem with airlines is MBAs.
31 Tan Flyr : I think the experiences at : UA... with Tilton and earlier Ferris EA.....with Frank Borman (yes Aeronautical, but not airline) PA.... well where do we
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