catdaddy63
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AA And APA Reach Agreement In Principal

Fri Nov 09, 2012 10:49 pm

Looks like a deal has been made!

Copied from the APA website: http://public.alliedpilots.org/apa/default.aspx

APA INFORMATION HOTLINE

This is APA Communications Director Gregg Overman with the APA Information Hotline for Friday, Nov. 9.

APA AND AMR MANAGEMENT REACH AGREEMENT IN PRINCIPLE: This afternoon the APA Board of Directors voted to present AMR management with a comprehensive counter-proposal. Management responded by agreeing to APA’s proposal. The APA Board of Directors will proceed in compliance with policy-manual requirements and vote to send the agreement-in-principle to the membership as a tentative agreement for a ratification vote.

APA designed our comprehensive counter-proposal to provide our pilots with an industry-standard contract while enabling American Airlines to complete a successful restructuring and compete on a level playing field with its network-carrier peers. The Board’s vote on the motion to present the comprehensive counter-proposal was 13 for, two against and one absent.

We will provide details of the new agreement-in-principle shortly.

Also today, the Board received a closed-session briefing from Jack Butler, who serves as the lead counsel for the Unsecured Creditors’ Committee. In addition, Andrew Yearley of Lazard, APA’s financial adviser, addressed the Board.

As of this recording, the Board remained in session. Thanks for checking this hotline.
 
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RE: AA And APA Reach Agreement In Principal

Fri Nov 09, 2012 10:57 pm

Glad to hear things are moving forward for both the pilots and the airline.
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lucky777
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RE: AA And APA Reach Agreement In Principal

Fri Nov 09, 2012 10:57 pm

How does this affect, if at all....the proposed merger with US Airways? Would AA management have more sway over the creditors committee if it can show how it has labor onboard a stand-alone or does none of this matter?
 
aluminumtubing
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RE: AA And APA Reach Agreement In Principal

Sat Nov 10, 2012 12:38 am

Yes, we have a TA. It looked like things were going down hill and this afternoon the APA board voted 13-2 to send APA's last best final offer to AA. AA management accepted. We hope to hear the details later this evening.
 
FWAERJ
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RE: AA And APA Reach Agreement In Principal

Sat Nov 10, 2012 12:57 am

Quoting lucky777 (Reply 2):
How does this affect, if at all....the proposed merger with US Airways?

US hasn't even made an offer (that we know of) yet.
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rj777
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RE: AA And APA Reach Agreement In Principal

Sat Nov 10, 2012 5:09 am

My guess is that US is waiting for the pilot crisis to be officially over.
 
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RE: AA And APA Reach Agreement In Principal

Sat Nov 10, 2012 7:57 am

From CNN:

http://money.cnn.com/2012/11/09/news...rlines-pilots/index.html?hpt=hp_t4

Quote:
Details of the agreement weren't immediately available, but the pilots' association said the proposal, which it submitted to AMR management, "provide[s] our pilots with an industry-standard contract while enabling American Airlines to complete a successful restructuring and compete on a level playing field with its network-carrier peers."
The pilots' association said earlier this week that the main sticking points in the talks had been pay parity with other carriers, furlough protection and rules regarding regional carriers that feed American.
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BlueSky1976
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RE: AA And APA Reach Agreement In Principal

Sat Nov 10, 2012 12:32 pm

So does this finally clear the way for AA to confirm their 787 order or not?
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justplanenutz
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RE: AA And APA Reach Agreement In Principal

Sat Nov 10, 2012 3:45 pm

Funny how, whenever something negative happens at AA, the a.net peanut gallery lights that thread up. "Unions are thugs,,,," or "Management are Robber Barons...." But when they agree on something truly positive for both, radio silence.
 
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Stitch
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RE: AA And APA Reach Agreement In Principal

Sat Nov 10, 2012 3:57 pm

Quoting BlueSky1976 (Reply 7):
So does this finally clear the way for AA to confirm their 787 order or not?

In theory, it should.
 
flyby519
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RE: AA And APA Reach Agreement In Principal

Sat Nov 10, 2012 3:59 pm

Quoting justplanenutz (Reply 8):
Funny how, whenever something negative happens at AA, the a.net peanut gallery lights that thread up. "Unions are thugs,,,," or "Management are Robber Barons...." But when they agree on something truly positive for both, radio silence.

Until this passes membership vote, they havent agreed on anything. Hold your champagne until then.
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JFKPurser
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RE: AA And APA Reach Agreement In Principal

Sat Nov 10, 2012 5:37 pm

Quoting lucky777 (Reply 2):
How does this affect, if at all....the proposed merger with US Airways? Would AA management have more sway over the creditors committee if it can show how it has labor onboard a stand-alone or does none of this matter?


The only "sway" AMR and Horton currently have over the UCC is the hopeless notion that their POR will give the UCC more value that what US Airways ultimately has to offer. But a pilot agreement does give the UCC what it wants to see to move the merger process forward.

With a pilot agreement on the horizon, the UCC would finally get what it wants according to the merger protocol agreed upon back in May when AMR announced it was going to entertain "potential consolidation scenarios". That essentially stipulates that no other competing PORs will be considered by the UCC until AMR presents a final POR against which all other competing PORS will be compared. Once the pilot labor costs become "fixed" for AMR with a ratified TA, the AMR POR will become the baseline for comparison with the US POR.

Since the NDA, DP and team have had ample time to flesh out their POR, which the UCC has beenwaiting almost eight months to have a look at. Most important, the stark and permanent reality that none of AMR's unions currently or ever will support the current AMR management team is something a majority of UCC members have had plenty of time to take to heart, and the pilot NO vote only drove that home to them even more. The deficiencies of AMR's standalone POR have not changed. The support for the US merge in bankruptcy among the non-bondholder group has not changed -- they are largely in favor of US Airways taking over and controlling the merge in BK, mostly due the labor unions having endorsed US Airways -- not to mention what nearly every single analyst has stated over and over again concerning the overall benefit to both AA and US as far as a merge goes.

The suspicion among UCC bondholder members has long been that any US POR will provide them with greater overall value -- for all the reasons mentioned above. But as I said earlier, they won't consider the US plan until the AMR plan is "ready", mostly because they want to be sure that US is forced to give them the highest possible return. Horton will certainly try to convince those bondholders that even though his AMR standalone doesn't give them as much immediate return, they will get it once AMR successfully emerges as a standalone so he can try to turn around and buy US AIrways on his own -- which would require them to wait much longer. And Horton's credibility as a CEO who would be able to successfully lead his disenfranchised labor groups -- especially the pilots -- in any post-merger takeover of US Airways is severely handicapped by the widespread notion among all parties involved in this that nobody who works for him is behind him, nor would they ever be in the future.

At a glance, the pilot TA doesn't seem to contain any significant additional "value" for labor as far as the UCC would be concerned. It's very possible that APA finally "got wind" of the reality that they needed to make some kind of an offer that they knew AMR would accept, otherwise this would go on in circles indefinitely, and force DP to make a hostile, which he has said he prefers not to have to do.

If the pilots ratify this agreement, all the pieces will be in place for the final showdown -- AMR's POR vs the completed US POR. And with labor support, the merger synergies, the scale of the larger network, added revenue and most important the ability to finally compete on equal terms with UA and DL as a merged carrier, it's clear who the winer will be. Nothing has changed about that since the beginning of this process.

[Edited 2012-11-10 09:42:22]
 
Cubsrule
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RE: AA And APA Reach Agreement In Principal

Sat Nov 10, 2012 6:10 pm

Quoting JFKPurser (Reply 11):
not to mention what nearly every single analyst has stated over and over again concerning the overall benefit to both AA and US as far as a merge goes.

Of course, that sentiment makes certain assumptions about costs both at US and at the combined carrier. And without seeing the pilot TA, it's tough to get a complete picture of costs.

Quoting JFKPurser (Reply 11):
And with labor support, the merger synergies, the scale of the larger network, added revenue and most important the ability to finally compete on equal terms with UA and DL as a merged carrier, it's clear who the winer will be.

It's not at all clear to me that AA needs US to "finally compete on equal terms with UA and DL." In what parts of the country is AA weak that US will help? US doesn't help on the west coast, for instance. CLT and DCA are nice to have, but at what cost? US operates at a pretty significant RASM disadvantage to AA, and for anyone who spends time flying both carriers and looking at the route maps, it's easy to see why.
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JFKPurser
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RE: AA And APA Reach Agreement In Principal

Sat Nov 10, 2012 6:35 pm

Quoting Cubsrule (Reply 12):
In what parts of the country is AA weak that US will help?

From a Deutsche Bank analysis of the merge dated 28 May:

Read the full analysis via this link and pay attention to pp. 44-50 -- it's only one of many detailed analyses of the benefits of the US/AA merge for the overall network:

http://www.scribd.com/doc/95457849/D...al-Stability-Through-Consolidation

Also:

“AMR has a network disadvantage today, which has resulted in a substantial revenue disadvantage. A combined AMR-LCC eliminates the weaknesses present in each standalone airline and we project revenue synergies of $1.5 billion annually.”
– William Greene, Managing Director, Morgan Stanley (6/10/12)

“US Airways still has a strong presence on the East Coast via its Charlotte (CLT) and Philadelphia (PHL) hubs, which together represent 67% of the company's traffic…Interestingly, US Airways, although mostly a domestic carrier, flies to more European destinations out of PHL than AMR does out of JFK, further indicating AMR's weak East Coast footprint. Thus, we think combining the carriers will expand revenue since AMR will benefit from US Airways' east coast presence and US Airways will benefit from AMR's Latin American exposure in Miami and Dallas. We believe the increased East Coast presence will enable AMR to shrink its revenue gap and lower its salary costs.”
– Basili Alukos, Equity Analyst, Morningstar (6/7/12)

“LCC and AMR together would be stronger than AMR alone, we believe. We view LCC’s route structure as being very complementary to AMR’s. LCC’s substantial eastern U.S. market presence, which it efficiently manages through its Philadelphia and Charlotte hubs, have much greater connectivity than AMR’s hub at JFK. AMR has struggled to generate this kind of connecting traffic in order to compete with Delta and United out of New York. The combined company could capitalize on LCC’s strong Eastern presence and combine both companies’ sizeable international presence to compete more effectively with United and Delta.”
– Bob McAdoo, Analyst, Imperial Capital (5/29/12)

“In terms of network overlap, LCC’s network would be very complimentary [sic] to AMR’s network, in our
opinion, as a combined airline would attain greater scale and be much better suited to compete against DAL
and UAL.”
– Hunter Keay, Senior Airline Analyst, Wolfe Trahan &Co. (4/25/12)







[Edited 2012-11-10 10:36:40]
 
Cubsrule
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RE: AA And APA Reach Agreement In Principal

Sat Nov 10, 2012 6:38 pm

Quoting JFKPurser (Reply 13):
Read the full analysis via this link and pay attention to pp. 44-50 -- it's only one of many detailed analyses of the benefits of the US/AA merge for the overall network:

I have read the analyses. The trouble as I see it is revenue. CLT gives network coverage, but at what revenue costs. Many of these analyses seem to assume US costs and AA revenue to make the numbers work, and that's simply unrealistic.
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JFKPurser
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RE: AA And APA Reach Agreement In Principal

Sat Nov 10, 2012 6:50 pm

Quoting Cubsrule (Reply 14):
I have read the analyses. The trouble as I see it is revenue. CLT gives network coverage, but at what revenue costs. Many of these analyses seem to assume US costs and AA revenue to make the numbers work, and that's simply unrealistic.

Well the analysts must all be wrong, then. I guess from where you sit, you have a better understanding of it. I'm not a number cruncher, so I have to put my trust into those who are -- and those who advise their investment partners on the best options which create the most value, and they all seem to agree that combining the two airlines makes the most sense for all parties involved. But that's just me. You must know something they don't. Anyway, we'll all just have to wait to see how the UCC feels about it. We should know in about six weeks.

And no matter how you feel about the numbers, Horton and AMR must agree with them as well, because they all know a merger is the only real way forward for AMR. They just want to be the ones in control of it, which would mean waiting until after they emerge. So one way or another, this will become a reality.

[Edited 2012-11-10 11:05:03]
 
Cubsrule
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RE: AA And APA Reach Agreement In Principal

Sat Nov 10, 2012 7:01 pm

Quoting JFKPurser (Reply 15):
Well the analysts must all be wrong, then.

Like I said, I don't know. I do know that the airline industry - despite lots of help from "analysts" who allegedly know a lot - has hemorrhaged money for decades. I can think of no industry with a more consistent historical record of destroying shareholder value than the airline industry. That is one of the reasons it fascinates me so.

Edited to add: in particular, I don't buy the assumptions about how well two groups of militant pilots (US/East and AA) will integrate. A couple of years of gridlock could destroy the whole enterprise regardless of how it looks on paper.

[Edited 2012-11-10 11:07:59]
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lightsaber
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RE: AA And APA Reach Agreement In Principal

Sat Nov 10, 2012 7:19 pm

Wow. Kudos to both sides. Now maybe AA can improve their on time performance!   

Quoting FWAERJ (Reply 4):
US hasn't even made an offer (that we know of) yet.

I suspect they will.

Quoting justplanenutz (Reply 8):
But when they agree on something truly positive for both, radio silence.

Silence is typical after shock.   Seriously, the two have been feuding publicly and in ways that have scared off customers. So the bar fight is over. While the pilots think of it as management picking up the tab for all the broken furniture, the reality is they will suffer due to customers being scared off. This was the wrong economy for a bar fight. Now its over. Yea. But they still trashed the place.

I avoided AA for a few months. When things settle down and are proven in the operating numbers, I'll return. The question is, what fraction of the total customers will return?

Quoting Stitch (Reply 9):
Quoting BlueSky1976 (Reply 7):
So does this finally clear the way for AA to confirm their 787 order or not?

In theory, it should.

One hopes so.

Quoting Cubsrule (Reply 14):
Many of these analyses seem to assume US costs and AA revenue to make the numbers work, and that's simply unrealistic.

Agreed. I am not for the merger as I do not see the ROI. Most of the analysis is from banks who would make a profit facilitating the merger... not exactly neutral sources. Alas, the data otherwise is poor.

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RE: AA And APA Reach Agreement In Principal

Sat Nov 10, 2012 8:28 pm

Quoting BlueSky1976 (Reply 7):
So does this finally clear the way for AA to confirm their 787 order or not?

It's a step forward, but one would imagine that such a move would have to be approved by the bankruptcy judge.

Further, I'd imagine that it'd be part of the final reorganization plan, rather than an individual motion brought before the judge.

Of course, my imagination could be wrong....
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commavia
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RE: AA And APA Reach Agreement In Principal

Sat Nov 10, 2012 8:30 pm

Quoting JFKPurser (Reply 15):
Well the analysts must all be wrong, then.

Sure wouldn't be the first time.   

You're quoting some of the same analysts who for months spoke of the structural disadvantage that AMR would permanently be at because its network wasn't as large as Delta's or United's. And yet, lo and behold, AA's revenue performance for much of this year has been meeting or exceeding that of Delta and United, and AA has essentially come quite close to closing the unit revenue gap, and that's before the new union contracts have even really been implemented yet. So clearly - as Ms Glading continually harps on - the "revenue problem" that AA needed to address is now very forcefully being addressed.

As for your repeated assertion that "stark and permanent reality that none of AMR's unions currently or ever will support the current AMR management team," and that somehow undermines AA's plan, I think that's fairly irrelevant. First, AMR's unions have hated and been adversarial to essentially every single management team at AMR since Crandall, whether rational and deserved or not. Nothing changed here. I suspect the vast majority of union members, while perhaps not liking Horton, will work for whoever is at the top as long as they get paid, and if they really viscerally hate that person that much, they'll leave. And, I suspect that won't change one bit even if Parker is in charge - within a few years, the unions will hate him, too. Beyond that, I doubt the UCC could really care much about the sentiments of the unions. When it comes to labor - which the UCC views as a number, nothing more, nothing less - the UCC cares about people showing up for work and doing their jobs well. I have yet to see any evidence that AA's union employees will stop doing that. The pilot slowdown was one thing, but with a contract in place, and the justification of "uncertainty" and "lack of protection" gone, I suspect they'll show up for work, too.

And yes - I fully agree with your sentiments that we will soon, hopefully, get to see the specifics of Parker's plan. I got it that he says there are billions in revenue synergies to be had by make a combined "new AA" larger. It does beg the question: if AA is already essentially producing peer-competitive (and by "peer" I mean Delta and United) unit revenue now, how does he plan to actually leap-frog what his two largest competitors are now producing, years into their mergers? I, like everyone, will also look forward to seeing how he plans to create a company generated essentially the same revenue as Delta and United, but with thousands more on the payroll. If he does plan huge layoffs, how he plans to implement them - and, critically, which side will bear the brunt of them - will also be interesting to learn. My guess: there will be massive layoffs, mostly in the maintenance and non-union areas, and weighted most heavily towards the USAirways work groups (and I think the USAirways work groups know it, too).

To be clear: I'm not saying that the UCC has or hasn't been sold on this Parker-union P.R. show, nor am I saying that Parker's plan isn't the best one. But what I am saying is that - given what we have witnessed, in this industry and really in this country in general, in the last decade - I wouldn't be holding up the endorsement of Wall Street bankers and analysts as some great badge of honor. They will support whatever they think makes them the most money, but I think it is certainly debatable whether they really know which option that actually is. What I think is absolutely not debatable is that the Wall Street crowd whose "analysis" the unions are wrapping themselves in now couldn't possibly care any less about labor beyond needing warm bodies to actually do the work. These are the same people who mere months ago were singing from Gerard Arpey's sheet of music that AA's labor costs were too high and their unions had to accept concessions.
 
TWA85
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RE: AA And APA Reach Agreement In Principal

Sat Nov 10, 2012 8:51 pm

Quoting JFKPurser (Reply 15):

What many analysts fail to realize, is that the US network is low yielding abd only profitable with the US cost structure. If AA and US merge, the US cost structure will come up to AA's cost structure which will still be than the current US structure and render much of the US network unprofitable. AA could obtain the same additional revenue by codesharing with B6 and AS that they could by merging with US and not deal with the headache of a merger. Also since AA has been leading the industry in RASM over the last several months, why does AA even need to merge with another airline, let alone an airline that does not have a very high yielding network. The argument of US and many analysts in favor of a merger is that AA needs to merge with US to obtain the revenue necessary to be competitive with UA and DL, however AA's problem has been lack of revenue, the problem has always been its cost structure of which US does not help address.

As for the AIP with the APA, AA management choosing to accept the APA counter proposal just may be a sign that AA management has realized it will be easier to compete with a happier labor force even though they won't have the lowest cost structure in the industry. A less restrictive scope clause will allow AA to utilize the right sized aircraft throughout its network which will result in higher RASM, and AA will be able to codeshare with B6 in NYC which will also result in higher RASM. Also this AIP will provide the AA pilots the industry standard contract they deserve. Win-Win for all parties involved.
 
commavia
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RE: AA And APA Reach Agreement In Principal

Sat Nov 10, 2012 9:01 pm

Quoting TWA85 (Reply 20):
What many analysts fail to realize, is that the US network is low yielding abd only profitable with the US cost structure. If AA and US merge, the US cost structure will come up to AA's cost structure which will still be than the current US structure and render much of the US network unprofitable.

I'm not sure if it's that people don't "realize it," but they have bought into Parker's P.R. - and perhaps his actual plan, too - that the higher costs can be covered by the higher revenue synergies.

Now, certainly, I think the example of United might give pause to some banking their investment on Parker's projections of revenue synergies. United, the last big U.S. legacy carrier to consummate a merger, also predicated massive revenue synergies, and yet today AA has now essentially reached parity with United in terms of unit revenue and has generally been beating United in unit revenue growth for months.

Personally, I have no doubt that a combined "new AA" would be able to incrementally drive some higher unit revenues given the overall expanded scope of the combined network and the relative bulking up of the carrier in many markets where today AA and USAirways are each, on their own, not as big but where they would be a much larger force combined. That being said - will this revenue boost be enough to cover the added cost to both airline's networks - particularly in the area of labor, where both airlines are now or soon will be operating largely under bankruptcy contracts? I'm not so sure. Again - I look forward to seeing Parker's plan. I think realistically the only way AA would be able to manage capacity at the macro-level and drive unit revenues anywhere close to high enough to support higher labor costs would be to simultaneously reduce capacity substantially (by substantially paring down the PHX hub and "right-sizing" ORD and CLT) and by becoming far more labor-efficient in terms of revenue-per-FTE. Either way, I think that would lead to a combined workforce that is perhaps higher paid, but substantially smaller, than the two work forces independently are today.

Quoting TWA85 (Reply 20):
As for the AIP with the APA, AA management choosing to accept the APA counter proposal just may be a sign that AA management has realized it will be easier to compete with a happier labor force even though they won't have the lowest cost structure in the industry. A less restrictive scope clause will allow AA to utilize the right sized aircraft throughout its network

Word elsewhere on the internet is that the APA's comprehensive proposal that AA agreed to is essentially Delta's scope clause, meaning AA came off their 79-seat demand and have agreed to the APA's 76-seat limit. Not sure what that means in terms of number of 76-seaters permitted. The company did, also, apparently get the ability to greatly expand codeshares, which was inevitable given the relatively less lax provisions Delta and United already had.
 
FURUREFA
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RE: AA And APA Reach Agreement In Principal

Sat Nov 10, 2012 9:37 pm

Quoting lightsaber (Reply 17):
Agreed. I am not for the merger as I do not see the ROI. Most of the analysis is from banks who would make a profit facilitating the merger... not exactly neutral sources. Alas, the data otherwise is poor.

To be fair, the Chinese wall at the various banks are very effective at avoiding conflict of interest issues when it comes to the research versus investment banking parts of a bank.

I haven't made my mind up as to whether I think the merger is the best way forward. I do believe, however, that the analysts are absolutely correct in stating that AA's network disadvantage will negatively impact future revenue growth. AA is not competing against the DL or UA of ten years ago; DL and UA today are both strong in the Pacific and in Europe, and, while certainly not as strong as AA in South America, have some sort of a South American presence.
 
BarryH
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RE: AA And APA Reach Agreement In Principal

Sat Nov 10, 2012 9:40 pm

Quoting JFKPurser (Reply 15):
Well the analysts must all be wrong, then. I guess from where you sit, you have a better understanding of it. I'm not a number cruncher, so I have to put my trust into those who are -- and those who advise their investment partners on the best options which create the most value, and they all seem to agree that combining the two airlines makes the most sense for all parties involved.

Your assumption is that analysts are objective. If US hired DB the results of their analysis wil skew to the pre-conceived outcome US is looking for. If AA hired DB their analysis would support AA's leanings. Same thing with specific groups of bondholders, secured creditors, and unsecured creditors. In this particular situation the only hope of an objective analysis would be if it were comissioned by the Judge. There will probably be a dozen sets of analysis presented in this case from various stakeholders all with their own biases. None of them will be wrong. A single set of numbers and variables can tell an infinite number of stories. The "winner" will be the one the Judge finds most plausible.
 
commavia
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RE: AA And APA Reach Agreement In Principal

Sat Nov 10, 2012 9:54 pm

Quoting FURUREFA (Reply 22):
I do believe, however, that the analysts are absolutely correct in stating that AA's network disadvantage will negatively impact future revenue growth.

Fair point, but it does beg the question: if AA has already now closed a substantial portion of the PRASM gap vs Delta and United, without even yet having completed the full restructuring, then why does AA need USAirways?

If the entire argument is that AA is incapable of being competitive with Delta and United because it is smaller, than does that argument get undermined somewhat by the fact that AA is, today, already generating similar PRASM numbers even despite its smaller network?

Quoting FURUREFA (Reply 22):
AA is not competing against the DL or UA of ten years ago; DL and UA today are both strong in the Pacific and in Europe, and, while certainly not as strong as AA in South America, have some sort of a South American presence.

Perhaps, although it again begs the question: why bother with USAirways then? USAirways only helps with Europe - and even then only brings a net of six new destinations, of which at least 2 (LGW and MUC) would almost certainly be cut as a result of network optimization and alliance realignment post-merger (and I could also see possibly ZRH and some of the FRA flying being cut for the same reasons). Beyond that, USAirways brings zero presence in Asia, and essentially zero presence in South America, and an added presence in the Caribbean that is tiny compared to AA.

However, that being said, I think the argument of USAirways helping fill out AA's network is far more compelling from a domestic perspective, where USAirways brings a substantially stronger presence along the east coast in several key areas (New England, Mid-Atlantic, Atlantic Southeast) where AA has little or no presence, and 2.5 hubs that are either excellent or as-good-as-anything-competitors-have in the region (PHL, DCA and CLT). That I do totally buy - the fusion of that to AA's existing domestic network, plus AA's existing global network, is certainly intriguing.
 
Cubsrule
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RE: AA And APA Reach Agreement In Principal

Sat Nov 10, 2012 9:55 pm

Quoting commavia (Reply 21):
Again - I look forward to seeing Parker's plan. I think realistically the only way AA would be able to manage capacity at the macro-level and drive unit revenues anywhere close to high enough to support higher labor costs would be to simultaneously reduce capacity substantially (by substantially paring down the PHX hub and "right sizing" ORD and CLT) and by becoming far more labor-efficient in terms of revenue-per-FTE.

I tend to agree with you that PHX, ORD and CLT would see cuts in a combined network and, from a revenue perspective, that that's probably a good thing. The trouble is that, especially at CLT, that's going to drive costs up. One of the reasons that CLT works well in terms of costs is its bulk. I am not convinced that CLT can work as a 300-350 flight/day hub; revenue goes up but I wonder whether costs go up more.

Quoting FURUREFA (Reply 22):
I do believe, however, that the analysts are absolutely correct in stating that AA's network disadvantage will negatively impact future revenue growth. AA is not competing against the DL or UA of ten years ago; DL and UA today are both strong in the Pacific and in Europe, and, while certainly not as strong as AA in South America, have some sort of a South American presence.

But what does US bring to the table in either place? In the Pacific, the answer is zero, and I'd argue that AA is better positioned in the Pacific than at any time in the past decade. There may be a route here or there to be added, but the AA network to Japan, China and Korea is more than adequate. DFW-HKG is a hole, but what else?

TATL, US adds a handful of cities, but UA and DL are both showing us pretty clearly that the way forward is with a strong, immunized partner. AA already has that; US does not. US does not bring a hub to the table that would enable service to the likes of AGP, PRG or STR.
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RE: AA And APA Reach Agreement In Principal

Sat Nov 10, 2012 10:25 pm

I've been thinking about CLT, and the fact that it is a low CASM, low RASM hub. The consensus on this thread is that AA's costs would make a lot of the US network out of CLT untenable.

I was wondering whether a merger could actually drive RASM growth at CLT, meaning that although costs would rise, the hub wouldn't be as unsustainable as some suggest.

North Carolina is a state that is unrecognizable from just 20 years ago, undergoing significant economic and demographic change. Charlotte is the second largest banking center in the country, while the Raleigh/Durham region has a major pharmaceutical industry. The state is home to major operations for global corporations such as Bank of America, Wells Fargo, GlaxoSmithKline, Pfizer, Merck, and Novartis.

These corporations need global coverage for their travel plans. So long as US is not able to connect them to the likes of HKG, PVG and BOM then they are going to struggle to tap into the revenue potential that is right on their doorstep.

It has always been said that US needs UA/DL/AA more than the larger partner needs them, but I do wonder if a global network would help US to build its own RASM.

As I said, this is just an idle thought, and I'd be interested to hear what other people think.
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RE: AA And APA Reach Agreement In Principal

Sat Nov 10, 2012 10:28 pm

We are still waiting for the details. My personal opinion in all of this, is that both AA and the APA received briefings from the UCC and that both sides were told to get this done ASAP, or they would proceed with plan B, which would not be attractive to either side. Just my two cents worth.
 
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RE: AA And APA Reach Agreement In Principal

Sat Nov 10, 2012 10:39 pm

With this deal almost done, what is the next step for AA? Will they finally be able to emerge from bankruptcy and start making money? I hope that soon we will see these headlines: "AA emerges from bankruptcy." and "AA confirms order for 787-9." Can't wait to fly AA!
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RE: AA And APA Reach Agreement In Principal

Sat Nov 10, 2012 10:53 pm

Quoting aluminumtubing (Reply 27):
We are still waiting for the details. My personal opinion in all of this, is that both AA and the APA received briefings from the UCC and that both sides were told to get this done ASAP, or they would proceed with plan B, which would not be attractive to either side. Just my two cents worth.

I would hope so and I really hope that AA becomes a stronger company without US acquiring them.

My question about the potential profitability of AA post BK. How quickly would they get ride of their MD fleet? I know they are not very cost effective to operate, but many are owned frames. At what percentage do many airlines decide a particular airframe is too costly to operate than the cost of a new airframe?
 
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RE: AA And APA Reach Agreement In Principal

Sat Nov 10, 2012 11:04 pm

Quoting RyanairGuru (Reply 26):
It has always been said that US needs UA/DL/AA more than the larger partner needs them, but I do wonder if a global network would help US to build its own RASM.

I think that's absolutely right, and I'd suggest that a similar argument might be made at DCA; PHL and CLT are great hubs for, more or less, cities within the DCA perimeter that can be served ex-DCA. ORD and DFW are nearly on the edge of the perimeter and complement what US is permitted to do from DCA really well. The AA experience at JFK is actually fairly pleasant (compared to Terminal 2/3 or the terminal change shuffle at EWR), and a combined US/AA could, I think, be a much stronger player in the WAS TATL market as well for that reason.

None of that answers the question, however, of why AA needs US.
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RE: AA And APA Reach Agreement In Principal

Sun Nov 11, 2012 12:31 am

Quoting FURUREFA (Reply 22):
To be fair, the Chinese wall at the various banks are very effective at avoiding conflict of interest issues when it comes to the research versus investment banking parts of a bank.

Agreed, but in the words of Upton Sinclair: “It is difficult to get a man to understand something, when his salary depends on his not understanding it.”

They know that performing a merger helps their job stability. Thus, they will be inclined to ignore details that inhibit a merger. One of which:

Quoting RyanairGuru (Reply 26):
The consensus on this thread is that AA's costs would make a lot of the US network out of CLT untenable.

  

Quoting aztrainer (Reply 29):
How quickly would they get ride of their MD fleet? I know they are not very cost effective to operate, but many are owned frames.

The MD-80s are being replaced by 738s and A319s. About 150 of the MD-80s will be replaced by the CFM-56 powered A319 of which 130 A319s and A321s by 2017 with 130 A320NEO to follow. I haven't found an exact final date on the MD-80, but the delivery schedule puts it in the 2018 to 2020 time frame.

http://www.aa.com/i18n/amrcorp/newsr...p?v_locale=en_US&v_mobileUAFlag=AA


To put it in perspective:
The MD-80, according to Alaska, consumes around 1,050 gallons per hour. But the newer and bigger 737-800 burns about 850 gallons per hour.

Read more: http://www.seattlepi.com/business/ar...n-as-1277527.php#ixzz2BrlHxTqy


200 gallons per hour. I do not know AA's MD-80 utilization, but it has to be higher than Allergiant's 8.9 hours/day (a known low utilization airline) and lower than B6's ~12 hours per day with the A320 (was 13 hours/day when they flew further, but AA flighs shorter routes with the MD-80s):
http://business.library.wisc.edu/res...avajecz/10_Fall/JetBlue_Report.pdf

So let's call it 10 hours a day or 2000 gallons saved by MD-80 replaced or at the spot price of $3.13/gallon for jet fuel, about $2,285,000 per year per aircraft. $2.28M USD per year is a lot. Plus maintenance savings (in particular, on the engines).

Quote from AS on fuel savings of 738 vs. MD-80 (1050 gallons/hr to 850 with the 738):
http://www.seattlepi.com/business/ar...80-era-winding-down-as-1277527.php

So AMR should replace the MD-80s ASAP which appears to be in the 2018 to 2020 time frame.

Note: If AA is paying *top* lease rates, the A319 costs about $1 million USD more than the fuel savings. I suspect their lease rates are lower and thus they come out ahead with the maintenance cost savings. Fall 2012 Aircraft Values And Lease Pricing (by LAXintl Nov 5 2012 in Civil Aviation)

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[Edited 2012-11-10 17:03:47]
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RE: AA And APA Reach Agreement In Principal

Sun Nov 11, 2012 1:50 am

Quoting commavia (Reply 21):
I'm not sure if it's that people don't "realize it," but they have bought into Parker's P.R. - and perhaps his actual plan, too - that the higher costs can be covered by the higher revenue synergies.

You make it sound as if Mr. Parker is being deceptive here. I don't understand why he would want this deal if he thought it would bankrupt his airline.
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RE: AA And APA Reach Agreement In Principal

Sun Nov 11, 2012 1:54 am

Quoting DocLightning (Reply 32):
You make it sound as if Mr. Parker is being deceptive here. I don't understand why he would want this deal if he thought it would bankrupt his airline.

US is obsolete and headed for extinction unless they merge with someone bigger. If he doesnt make this deal happen he will be out of a job.
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RE: AA And APA Reach Agreement In Principal

Sun Nov 11, 2012 1:58 am

Quoting flyby519 (Reply 33):
US is obsolete and headed for extinction unless they merge with someone bigger. If he doesnt make this deal happen he will be out of a job.

How do you figure? They have been posting record profits in recent quarters? I don't see how an airline is heading for extinction if they are posting record profits.



I want to see the details of this TA. I am particularly curious about Scope. That is the big one that will affect others as well.
 
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RE: AA And APA Reach Agreement In Principal

Sun Nov 11, 2012 2:00 am

Quoting flyby519 (Reply 33):
US is obsolete and headed for extinction

A bit drastic, no?

US is good a what they do: shift people up and down the East Coast. Between the shuttle and DCA, plus two fortress hubs, there is no evidence to suggest that US can't continue plodding along and turn in a small profit.

What DP wants is to actually grow the airline, and that will be difficult/impossible without a partner.
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RE: AA And APA Reach Agreement In Principal

Sun Nov 11, 2012 2:07 am

Quoting DocLightning (Reply 32):
You make it sound as if Mr. Parker is being deceptive here.

Well if I do that is not my intent. My intent is to make it sound as if he's selling something, which he is (as are all of us). He (with the willing and active involvement of the unions) is making a sales pitch. The question is whether what he's selling is worth buying. Time will tell.

Quoting DocLightning (Reply 32):
I don't understand why he would want this deal if he thought it would bankrupt his airline.

I'm not suggesting that he plans to bankrupt his airline (although there are skeptical employees of both companies that think that is his ultimate goal for the combined company in a few years time). I personally take Mr. Parker entirely at his word that he believes the synergies from the combined entity would produce a stronger, more competitive carrier. I am just curious to see his math that led him to arrive at that conclusion.

Quoting flyby519 (Reply 33):
US is obsolete and headed for extinction unless they merge with someone bigger. If he doesnt make this deal happen he will be out of a job.

I don't know if I'd go that far, but I do generally agree that any recent profitability aside, strategically USAirways needs this merger more than AA does.

USAirways has been consistently profitable lately, but that is in large part driven by the fact that the airline's current business model is built on hubs that are generally (with the exception of PHX) dominated with little competition and, critically, bankruptcy wages that are lower than legacy peers.

From my perspective, one way or another, USAirways employees are some day going to get a massive raise that will bring them more into at-least-near-parity with their legacy counterparts, and when they do, large portions of the USAirways network (as it exists today) will be rendered unprofitable. Parker is up against this inescapable ticking time bomb of airline economics, and he knows it, which is why he is so keen to merge as soon as possible to try and unlock the synergies of a merger (both in terms of higher revenue and redundancies/layoffs) to offset this inevitable jump in costs.

Quoting apodino (Reply 34):
I want to see the details of this TA. I am particularly curious about Scope. That is the big one that will affect others as well.

Well, again, elsewhere on the net it has been stated that AA essentially accepted APA's final scope proposal as it relates to regional feed (regionals can operate only up to 76 seats, essentially Delta's scope) and AA got increased codesharing. That's obviously very non-specific, so I, too, will be interested to see what's in the language, but perhaps that's a start.
 
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RE: AA And APA Reach Agreement In Principal

Sun Nov 11, 2012 2:22 am

Quoting apodino (Reply 34):
How do you figure? They have been posting record profits in recent quarters? I don't see how an airline is heading for extinction if they are posting record profits.

I feel that Parker has been extremely fortunate for the labor situation that has fallen into his lap and is allowing US to have super low CASM, therefore propping up a less than desirable network. The formation of mega carriers DL/NW, UA/CO are going to be a serious force to be reckoned with along the east coast and will give US a lot of pressure they havent had to face in the past. I dont think US is sustainable given the inevitabilities of increased labor costs and megacarrier competitors.

If US can merge with AA it will create a megacarrier on a similar scale as the others, but much of the ex-US network wont be financially feasible with the increased labor costs that Parker has promised to the AA labor groups.

So yes, I think US/AA will happen, but the future of AA is going to be filled with heavy cuts and reductions to the ex-US network, but I think it would be in AA's best interest to avoid a US merger and seek alternative strategies.

[Edited 2012-11-10 18:24:17]
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RE: AA And APA Reach Agreement In Principal

Sun Nov 11, 2012 2:38 am

Quoting apodino (Reply 34):
I want to see the details of this TA. I am particularly curious about Scope. That is the big one that will affect others as well.

I'm also curious about A319 wage rates as well as pilot productivity. There are many interesting bits to discuss (e.g., furlough protection and pilot schedule). All hints are to much broader scope that is on the lines of DL's new provisions.


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RE: AA And APA Reach Agreement In Principal

Sun Nov 11, 2012 3:14 am

Quoting commavia (Reply 24):
Perhaps, although it again begs the question: why bother with USAirways then?

US brings nothing to the party that a post-bankruptcy AA with a new lower cost structure and increased flexibility couldn't replicate themselves either mainline or with OW, code share, and regional partners. Part of AA retrenching previously was because they couldn't viably compete economically. A lot of routes that were dropped were probably profitable but barely. When your margin is being compared to competitors you can't afford to either lose money on flying or eke out a pencil thin margin. Because of the yields, the "cornerstone strategy" was the only viable way to drive margins with lopsided costs because of the heavy business orientation of those markets. With competitive costs, efficiency from fleet renewal, and a smaller debt load AA's view of future opportunities will most likely look different than the past. Probably the most meaningful assets US possesses (LGA and DCA slots) are going to be divested to some degree in order to get the merger approved. The biggest value in the merger probably won't be discussed overtly in the presentation(s). And that's taking more flying capacity out of the U.S. to gain better pricing control. And that won't just benefit AA/US; it'll benefit the whole industry. If this were truly just about network synergy US could dump Star and moved to OW and AA/US could seek anti-trust immunity with the OW partners. The operational gains would be similar to that of a merger with a smaller financial upside, less cost savings, but a hell of a lot less complexity and risk to both US shareholders and AA creditors. Especially since Parker’s said publically nothing would be cut if a merger was approved. There’s a lot more to this than just “my airline’s managers can beat up your airline’s managers.”
 
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RE: AA And APA Reach Agreement In Principal

Sun Nov 11, 2012 3:21 am

Quoting BarryH (Reply 39):

Said perfectly! I couldn't agree more
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RE: AA And APA Reach Agreement In Principal

Sun Nov 11, 2012 4:15 am

Below is part of an email sent to us by our DFW APA board members. I guess it may be up to a week before we find out the specifics of the AIP.

[/[We also want to make sure that you are aware, in accordance with APA policy, that National Officers and committee members are prohibited from commenting on the agreement until the APA Board of Directors approves it as a Tentative Agreement to be sent to the membership for ratification. Rest assured that before your vote, we will make sure you have all the information possible to make an informed decision.[/[
 
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RE: AA And APA Reach Agreement In Principal

Sun Nov 11, 2012 4:58 am

Quoting commavia (Reply 21):
Quoting TWA85 (Reply 20):What many analysts fail to realize, is that the US network is low yielding abd only profitable with the US cost structure. If AA and US merge, the US cost structure will come up to AA's cost structure which will still be than the current US structure and render much of the US network unprofitable.
I'm not sure if it's that people don't "realize it," but they have bought into Parker's P.R. - and perhaps his actual plan, too - that the higher costs can be covered by the higher revenue synergies.

When AA bought Air Cal and Reno Air, their rationale was that the additional traffic generated by AA having a bigger presence on the West Coast, especially on transcontinental routes out of the SF Bay area, would more than offset bringing OC / QQ employees up to AA wage levels. All of us know how well that worked out.

Also, USAirways still hasn't integrated their ex-US and ex-HP pilot seniority lists. US should not even think about adding the temporarily compliant but still breathtakingly militant AA pilots to their workforce when their existing crew seniority lists haven't been integrated. I shudder at the potential for slowdowns, wildcat strikes, etc, when you put HP, US, AA, and even a few TW pilots together.

I still feel AA would be far better off merging with B6 than US. In large part B6 owes its existence to AA's decision to allow their historically strong presence in New York City and Boston to wither away (despite the purchase of Command Airways and Business Express) post-deregulation. I feel this was an even bigger mistake than the TWA acquisition, or buying OC and QQ.

Unlike USAirways, merging with B6 would almost certainly generate enough incremental high yield traffic to offset the need to bring B6 employees up to AA wage levels. Hubs in JFK and BOS are far more valuable than hubs in PHL and DCA. Conversely, not buying B6 would leave AA a weak #4 in New York City with or without a US merger, and very vulnerable to attack from DL once DL's problems with the "third world port" are fixed in a few years.
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RE: AA And APA Reach Agreement In Principal

Sun Nov 11, 2012 3:56 pm

Quoting BarryH (Reply 39):
US brings nothing to the party that a post-bankruptcy AA with a new lower cost structure and increased flexibility couldn't replicate themselves either mainline or with OW, code share, and regional partners

It gets rid of a competitor, one that may end up merging with others and making AA's life rougher.
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RE: AA And APA Reach Agreement In Principal

Sun Nov 11, 2012 4:04 pm

Quoting Revelation (Reply 43):
It gets rid of a competitor, one that may end up merging with others and making AA's life rougher.

Which other airline would US merge with? DL and UA fought fiercely to avoid a US merger.
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RE: AA And APA Reach Agreement In Principal

Sun Nov 11, 2012 4:10 pm

Quoting lightsaber (Reply 38):
I'm also curious about A319 wage rates as well as pilot productivity.

Well based on what was released last week, the A319 pay rate had already been agreed upon and was not one of the open items holding things up. Apparently AA agreed to put the A319 into the same pay band as the 737-800. Seeing as the A319 is over 20% smaller than the 737-800, I am curious to know how AMR now views the economics of that jet in the context of this TA, if it is to pass.

Quoting BarryH (Reply 39):
US brings nothing to the party that a post-bankruptcy AA with a new lower cost structure and increased flexibility couldn't replicate themselves either mainline or with OW, code share, and regional partners.

I disagree. USAirways brings a massive presence at DCA, which is a prize in and of itself. It brings two great hubs along the east coast that AA could never replicate - in terms of critical mass or geographical access - any other way, including with any other merger partner. Those three things - DCA, PHL and CLT - alone have huge merit. Again, though, the question is whether that merit is undermined by the cost and complexity of the merger, integration and resulting higher costs.

Quoting WA707atMSP (Reply 42):
When AA bought Air Cal and Reno Air, their rationale was that the additional traffic generated by AA having a bigger presence on the West Coast, especially on transcontinental routes out of the SF Bay area, would more than offset bringing OC / QQ employees up to AA wage levels. All of us know how well that worked out.

I generally agree. Banking on hypothetical higher revenue to cover certainly higher costs has not traditionally been a winning strategy in the airline industry for anyone who's tried it.

Quoting WA707atMSP (Reply 42):
Unlike USAirways, merging with B6 would almost certainly generate enough incremental high yield traffic to offset the need to bring B6 employees up to AA wage levels.

I'm not so sure, since much of JetBlue's network - like USAirways' - would be rendered instantly unprofitable at AA's cost levels. Now, that being said, the slots and density JetBlue would bring would give AA critical mass in a strategically important area and the opportunity to reallocate resources. But would the higher revenue be enough to offset the higher costs? Just as with USAirways, I'm not sure. One thing if for sure, though - the union integration would be far less messy, since JetBlue is very lightly unionized and its workforce is generally very junior relative to AA's.

Quoting Revelation (Reply 43):
It gets rid of a competitor, one that may end up merging with others and making AA's life rougher.

It would eliminate one more competitor, which in and of itself would be helpful - for all carriers. Nonetheless, I'm not sure how plausible it is that USAirways would somehow find somebody else to merge with absent a merger with AA and "make AA's life rougher."

That's sort of like Parker's (empty, in my view) implication that if AA and USAirways don't merge right now, it may become much more difficult if not impossible later. I find that highly unlikely. If the logic of a deal is supposedly so overwhelming, it will make sense no matter when it happens, regardless of any efficiency that can be gained by doing it in bankruptcy. And as for the threat that AA might get into a bidding war if it were to try to acquire USAirways later - that, too, I think is highly unlikely. USAirways has nobody else to merge with. It's AMR or no merger for USAirways, in my view.
 
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RE: AA And APA Reach Agreement In Principal

Sun Nov 11, 2012 4:35 pm

Quoting commavia (Reply 45):
I'm not so sure, since much of JetBlue's network - like USAirways' - would be rendered instantly unprofitable at AA's cost levels. Now, that being said, the slots and density JetBlue would bring would give AA critical mass in a strategically important area and the opportunity to reallocate resources. But would the higher revenue be enough to offset the higher costs?

It would definitely turn into the ultimate heavyweight bout between AA and DL for JFK, but if AA wants to be a heavyweight player then this is a fight then need to win.
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RE: AA And APA Reach Agreement In Principal

Sun Nov 11, 2012 5:00 pm

Quoting RyanairGuru (Reply 26):
It has always been said that US needs UA/DL/AA more than the larger partner needs them

I agree 100%.

I think it's really interesting that the USAirways fans on ANet are strongly in favor of a US/AA merger. The AA fans are generally anti-merger, even though the combined airline would almost certainly be called "American Airlines" and headquartered in DFW. This is a pretty clear indicator of which airline needs a US / AA merger more.

Conversely, the AA fans are in favor of an AA / B6 merger, the thought of which horrifies the pro-B6 faction of ANet. Once again, this shows that AA needs B6 more than B6 needs AA.
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RE: AA And APA Reach Agreement In Principal

Sun Nov 11, 2012 5:51 pm

Everyone: If you want to discuss the possible US/AA merger, please start a new thread.

Quoting commavia (Reply 45):
Apparently AA agreed to put the A319 into the same pay band as the 737-800. Seeing as the A319 is over 20% smaller than the 737-800, I am curious to know how AMR now views the economics of that jet in the context of this TA, if it is to pass.

Is it the same pay band or is it the pay by MTOW that AMR used to do? I believe the wording leaves enough 'wiggle room' that I remain curious to see what the final decision on A319 pay rates will be. I do not believe it was a 'sticking point,' I just am not sure of the final rates.

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RE: AA And APA Reach Agreement In Principal

Sun Nov 11, 2012 6:17 pm

Quoting lightsaber (Reply 48):
Is it the same pay band or is it the pay by MTOW that AMR used to do? I believe the wording leaves enough 'wiggle room' that I remain curious to see what the final decision on A319 pay rates will be.

My understanding is no. If this latest TA is like the earlier TA, and the April term sheet, there will be no more determination of pay for each individual aircraft based on MTOW. All aircraft that fit within a certain band, either as explicitly identified and enumerated in the contract or based on their FAA-max seat configuration, will be paid the same rates. AA's original term sheet had the A319 in a separate, lower, pay band from the 737-800. Now it appears AA has agreed to combine both into the same pay band.

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