The First Words From American/US Airways On The DOJ Lawsuit

I meant to post this yesterday when I got the below e-mail from Doug and the folks at “New American Arriving”.  I received a mass e-mail from the good folks at US Airways/American Airlines detailing their thoughts on the DOJ lawsuit filed yesterday.  First, the text of the letter:

As US Airways continues to pursue a potential merger, I want to keep you updated as developments occur.  
 
The DOJ has unfortunately just announced that it intends to try and block our proposed merger with American Airlines. I am extremely disappointed in this action and believe the DOJ is wrong in its assessment and we will fight them. I remain confident that by combining American and US Airways we are enhancing competition, providing better service to our customers and improving the industry as a whole. We are mounting a vigorous and strong defense against the DOJ’s case in order to bring our airlines and talented team members together as the new American Airlines.
 
I am certain that our proposed merger is the best path forward for both airlines, all of our stakeholders and the communities that each airline serves. In fact, the unions at both carriers support a merger of American Airlines and US Airways because they know that they will benefit from working for a stronger, more competitive airline that is better positioned to grow and thrive in today’s industry. 
 
The new American will be a premier global carrier that is positioned to meet our customers’ needs better than any other airline, while also competing more effectively and profitably in the global marketplace. 
 
In light of today’s announcement, the companies no longer expect the merger to close during the third quarter of 2013. However, we are hopeful that the litigation will be successfully concluded and we will close the merger before year end.
 
I appreciate your support and will keep you posted on any developments, but in the meantime, it is business as usual at US Airways. Please contact our Washington, D.C. representatives should you have any questions about this matter.     
 
Sincerely,
 
Doug

There are a bunch of different thoughts going through my head, not sure I can get it all committed to print.  Let’s start with what I think the letter tells us.

I don’t think that American/US Airways had any clue this was coming until very recently.  There have been plenty of announcements about staff staying and going.  In certain cases, specific executives have been told they don’t have a role in the combined entity.  That’s not necessarily a good business strategy if you think the merger isn’t likely to close.

Doug states the obvious in the letter, that the merger will not be closing in the 3rd quarter of 2013.  The part where he says he’s hopeful that litigation would be successfully concluded and the merger closed before year end is missing the salient detail of what year he actually thinks that will happen.  Because if this thing goes to court (which I can’t imagine it ever will) they probably don’t even have a court date scheduled before the end of the year.

No, this is either a long delay or the ultimate death of the merger, which leads to some questions.

First, how does American form new agreements with its creditors and emerge from bankruptcy?  The DOJ is only weighing in on the merger.  The creditors of American Airlines’ parent AMR have agreed in some cases to restructure debt in exchange for equity in a combined airline.  Now, those equity splits don’t match because it’s a much smaller company without the merger.  And, in some cases, a creditor may have only been willing to take equity from a combined airline as opposed to a stand-along American Airlines (see grumpy union folks).

American has also negotiated a bunch of new contracts with its major labor unions.  But, those union members also believed they were getting pay raises as part of the merger and subsequent tentative labor agreements for a combined airline.  I’m guessing that’s going to lead to some unhappy campers.

And, that still leaves the aforementioned issue of senior staff members at both airlines that were essentially told that they weren’t going to be part of the new company.  Now, it’s, “Gee, what we really meant was you’re such an integral part of our team.  Can you stay a bit longer?”

Ultimately I think it’s worth asking myself if I’m still fine with the two airlines merging now that there’s a very real chance it doesn’t happen.  I was against the merger in the beginning due to plenty of difference in the culture between the two airlines.

But, I had started to come around to the notion that I was going to be flying a much bigger airline, though maybe not with quite the service standards I was used to.  With a home airport of Washington Dulles (IAD) I wasn’t going to add a ton of new connections from here.  But, I did pick up some useful flights to Charlotte, which beats a sharp stick in the eye.

If a merger doesn’t close, then it’s unlikely American Airlines will focus in the short term on things like giving all elite members unlimited free upgrades (like all the other legacy carriers).  They’re also unlikely to be focusing on reducing benefits or moving to a revenue-based program while they figure out whether to challenge the lawsuit/negotiate with DOJ or burnish a plan to emerge as a stand alone airline.

I view this as generally good for members of the AAdvantage program short-term as American is likely focused on other more pressing matters.  But, we’ll have to wait and see.

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