Monday, February 18, 2013

Air Carrier Merger May Have Some Ramifications for Freight Industry

US Airways and American Airlines Merger Blessed by Unions
Shipping News Feature

US – Although primarily a passenger story, and therefore outside the normal remit of the Handy Shipping Guide, the merger between American Airlines (AA) and US Airways which was announced last week is worth examining as it does have some ramifications for freight operatives. It seems many union leaders in the US have woken up to the economic realities of shipping both members of the public and the cargo which resupplies every aspect of their lives and judged that, in hard times, big is beautiful.

Every analyst worthy of the title in the States has indicated that the union between the two companies was in part driven by the willingness of the unions to accept a merger. A senior spokesman for AA has been quoted as saying that having all American unions on side for the deal is unprecedented. In the maritime sector recent deals with dock workers on both West and East coasts point to a renewed desire by management and labour to keep traffic flowing.

A look at the economic records and past trading history of the two companies makes interesting reading, whilst AA filed for bankruptcy in late 2011, the smaller outfit is a company formed essentially by numerous previous mergers dating back to the 1960’s even before the US Airways name was adopted in the 1990’s. The company had more recently discussed a merger with United Airlines and failed in a $10 billion bid to capture Delta.

The deal finally came about, despite the initial doubts of the AMR Corporation, AA’s owners, when the three biggest AMR unions all voiced their support. Relations between labour and management were sorely tested when AA originally filed for bankruptcy with hundreds of staff protesting in the streets. The Allied Pilots Association (APA), Transport Workers Union (TWU) and the Association of Professional Flight Attendants (APFA) all got behind the idea of a deal but another key reason for this conjoining of the two companies into what they themselves describe as ‘the biggest airline in the world’ probably comes down to the fact that all the protagonists, company bosses, unions and financial advisors to both sides, know each other so well.

The union bosses knew the management at US through negotiations during previous mergers whilst many of the advisors to both sides had worked closely with their opposite numbers on similar transactions. It was always in the interests of the bankers to have a happy ending and getting the unions to agree was the cornerstone of the arrangement which sees 28% of the diluted equity of the new company go to US stockholders and 72% to AMR stakeholders and the groups debtors which filed for relief under Chapter 11, the unions and current AMR employees.

Unions seem particularly reticent to comment on the deal (other than the official statements wholeheartedly supporting it) but it is hard to see how the merger will actually achieve all that a joint statement from the new management promises. The press release talks of benefits to customers with a bigger network and increased loyalty bonus opportunities, maintenance of all hubs and destinations and improved compensation, benefits and long term opportunities for employees. The group will retain the American Airlines identity with its HQ in Texas but a ‘significant presence’ in Arizona, where US has its current headquarters. What it doesn’t mention are the economies of scale which will presumably mean job cuts necessary to turn the two companies into one larger, profitable unit.