There have been lots of developments in the American Airlines bankruptcy. American wrapped up labor contracts with all of its groups except the pilots, their original request to the bankruptcy court to impose new terms on its pilots was rejected but only due to two defects and the court invited American to re-submit.
American will soon have its planned labor cost savings in place, and the airline posted a $135 million profit in July.
The expectations have been flying for a long time that US Airways would acquire American, largely because US Airways CEO Doug Parker wants to own a bigger airline so badly and makes no secret of it. His merger with United was reportedly scuttled the first time when he wasn’t going to get to run the combined carrier. His second attempt was scuttled by the Continental-United deal. He even tried to acquire Delta. And he’s made clear every step of the way that American is his long lost love — going so far as to buy small amounts of debt to get media attention for having a seat at the table in the American bankruptcy as a creditor.
American pilots would deeply prefer to bargain with Mr. Parker, and said so, indicating that US Airways and American had signed non-disclosure agreements that would facilitate merger discussions. US Airways had to issue a release clarifying that while they had received a document from American, it had not in fact been signed.
The AP’s Scott Mayerowitz has been all over developments in this story, previously reporting that American had actually been first to broach the notion of a deal with US Airways, rather than the other way around. That, combined with recent news of American exploring $1 to $2 billion in exit financing from bankruptcy fuel speculation that American could be the acquirer, rather than the acquired.
Today Mayerowitz reports that US Airways and American finally have signed confidentiality agreements that indicate they’re pursuing discussions. He also reported that at least one other airline had signed an agreement, speculating that the undisclosed airline wasn’t JetBlue or Alaska since both carriers had publicly indicated they weren’t open to merging with American.
Mayerowitz later revealed that British Airways had signed an agreement with American. BA had previously indicated an interest in and willingness to invest in the restructuring of its Joint Business Venture and oneworld partner, although of course it would be limited under current law to no more than a 25% equity stake in the airline. (It’s a silly rule, and there are ways to gain greater control than formal equity stake limitations would imply, but there’s little likelihood that the rule itself disappears in an election year here in the States.)
It’s hard to imagine any deal with US Airways that leaves current American management in place, or rather that doesn’t put Doug Parker atop both companies. He’s supposedly already been willing to walk away from a deal for that reason alone.
We’re clearly approaching the endgame, with American having obtained much of the cost-cutting they are going to achieve in bankruptcy and also riding the wave of full aircraft that leads to profitability despite continuing weaknesses on the revenue side. The winter months may prove more vulnerable for the carrier, but for now at least the progress makes them look more expensive as an acquisition target, and the possibility of investment from hedge funds or other airlines means they have realistic alternatives to a merger.
Though American and US Airways are talking, American is talking from a position of greater strength than at the beginning of the bankruptcy process. And management generally has strong personal financial incentives to emerge independently. Any deal in which American is acquired either happens after emerging from bankruptcy or finds a way to buy off internal interests.