First Steps

December 12, 2013 on 12:53 pm | In Mergers and Bankruptcy | No Comments

Yesterday, I made note that Doug Parker has put the right foot forward at the start of his leadership of American Airlines.  Let’s take a look at those moves.

Parker has promised salary transparency and that will mean a great deal to employees at American Airlines.  US Airways employees are already used to Parker being very candid about his salary but American Airlines employees got a lot of “surprises” over the past 13 years or so.  Surprises that never looked good and always sent the wrong message.  I think that AA employees are going to find Parker & Team very refreshing when it comes to transparency.

Reserved parking at headquarters for top executives has been eliminated.  This will seem like a small thing but it is a wildly different attitude from that which existed at AA post-Robert Crandall (Crandall was fairly egalitarian in his regime but things changed after that starting with Don Carty).

Security guard for the executive offices have been dismissed.  Can you even imagine needing a platoon of security for executive offices?  Yet, that was reality and represents the “fortress” mentality of Gerard Arpey’s reign.  (Mind you, you can’t go strolling into the executive offices to do whatever but that’s basic corporate security at any large corporation and appropriate.)

Before I go on, I want to point out that those three items alone could have been instituted by Tom Horton and his team the day they took control of American Airlines into bankruptcy.  The fact that things like that did not happen is why I never felt Tom Horton was the right man for the job.  Leadership really does start at the front, not the back.

Parker will surprise people with more things similar to this.  For instance, I expect he will make 1 to 2 trips a month out into the field to hold informal discussions with employees.

And expect Parker to ensure his executive leadership follows his example.  You won’t see executives hiding executive offices, never venturing out into the field.

This is why I think Doug Parker can turn American Airlines into a world class leading airline.

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Yes, I noticed

December 11, 2013 on 10:24 pm | In Mergers and Bankruptcy | 10 Comments

It’s possible that some readers may have noticed my absence.  A Great Illness took hold of me.  Then a Great Ice Storm.

So, more tomorrow but a comment or three today:

OK, so, everyone got what they asked for.  It’s often been said that you should be careful what you ask for.

I think Doug Parker is off on the right foot in setting  a leadership tone for the new American Airlines.  I think the American Airlines employees will appreciate it both for the tone as well as the respect it shows to employees.  I don’t know what the response will be from the US Airways people but I hope it’s tasteful.

Tom Horton got paid off.  That part isn’t pretty but it was necessary, I think.  Now, he’s gotten his payoff, it’s time to go.  The sooner, the better.  I’ll also now say that I think Tom Horton rose above my expectations in all of this.  Although I didn’t care for his initial comments after the merger was announced, he did settle down and, more importantly, he did work earnestly to make the merger happen.  That was significant and meaningful and he should get credit for it.

I think it was a gracious and even pleasant gesture for Bob Crandall to come out for the birth of the New Company.  Seeing photos of Crandall, Horton and Parker at the beginning of the new company made me feel like this newly merged company has a very real chance at greatness.

For debtors, this is the best outcome anyone could get from a bankruptcy.  Be thankful for it.

On the subject of the new American Airlines livery . . . I will buy Doug Parker the best Mexican dinner I can find in the Dallas area if he will just make that ugly design go away and bring something that A) is good design and B) is less expensive to paint on the over 600 new aircraft coming to AA.

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Pressure is applied

October 6, 2013 on 1:00 am | In Airline News, Mergers and Bankruptcy | No Comments

Unions, particularly American Airlines’ APFA, are now putting pressure on other attorneys general in Florida, Virginia and Arizona to also engage in a settlement on the lawsuit filed by the DoJ.

So far, each is resisting.

I think that will change, perhaps.  Florida really hasn’t got a big stake in this lawsuit and their attorney general may feel the exceptional voice of APFA out of Miami in a short time.  Politically speaking, it’s not wise to go against pay raises for airline employees.  They come so infrequently that it is a major hot button.

Virginia is going to hold its position, I think.  But mostly because they do have a stake in air fair prices at Washington Reagan National.

Pennsylvania is exacting revenge on US Airways for what happened in Pittsburg, in my opinion.  That is a mistake as it could strongly affect how the merged American Airlines will treat Philadelphia in a merger.  But I think there is a deal to be had here and I think that this deal is Doug Parker’s to make.  The deal is to retain Philadelphia as a hub for a certain number of years with a minimum number of flights to be maintained.  Is that a problem?  No, that’s a good hub for US Airways and it should remain a good hub for the merged airline. It costs little to make that deal.

Arizona is protecting its stake as well and this time its with an attorney general who has a less than steller reputation.  The Arizona AG may well find exceptional political pressure applied here too.  Why?  Because pilots and flight attendants for US Airways are desperate for a pay increase and there are one hell of a lot of pilots and flight attendants in Phoenix.

Will the merged company retain its hub in Phoenix?  I think it will.  It has never been practical to operate a hub in Los Angeles or San Francisco.  Delta operates a profitable and beneficial hub in Salt Lake City.  United has Denver and Dallas is too far from the West Coast to be well positioned.  I think Phoenix stays although in a revised configuration.  Again, this is Doug Parker’s domain and he and his team should begin applying pressure and working with their unions to achieve a deal here.  I actually don’t think that the Arizona AG will  mind smiling and reversing his position if he sees his political fortunes dim with pressure.

Tennessee is just mad.  It’s mad about Memphis and that AG is actually politically isolated.  There is no deal here, in my opinion, but I also think their opinion and participation amount to nothing in the lawsuit.

Time will tell but right now the lawsuit proceeds, deals are being made and the US Department of Justice has little maneuvering room at present.  The DoJ will say that the fight is in the courtroom and isn’t a popularity contest.  They would be right about that but when your support abandons you over time, few people want to go into a courtroom and be your friend.

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In the defense of Parker

August 16, 2013 on 1:00 pm | In Airline News, Mergers and Bankruptcy | No Comments

Some in the media have decided to blame Doug Parker for this development with respect to the Department of Justice lawsuit to stop the merger.  Some like Mitchell Schnurman of the Dallas Morning News for instance.

I believe that is disingenous at best.  Schnurman has been a huge promoter of the merger and Parker to lead the new company.

Did Parker drop the ball?  I do not believe so and here is why:

This announcement has stunned everyone including even those within the government itself.  It caught analysts with decades of experience off guard.  It caught *all* newsmen off guard.  Anyone who could possibly have had an inkling of what was to come has expressed genuine surprise at this development.

So why should Parker be any different?

The truth is that I think that it is possible although highly unlikely that airline attorneys may have gotten a tiny signal from the DoJ but the way Mr. Assistant Attorney General Baer is behaving, I strongly suspect he kept things very secret so he could have his days in the sun.

Parker artfully negotiated all the turns in this deal and, yes, even handled the government deftly.  He had no need to be especially cautious in this deal as the DoJ goes because it defies any logic or precedent that the DoJ would find anything more than the need for givebacks at a single airport:  Reagan National

In fact, I think the way Parker has played this so far indicates he is more than the right man to lead this new company.  He has shown restraint, good humour and a creativity that you just don’t see in most of today’s airline CEOs.

In fact, I’ll go one step farther:  I think Parker has become an airline CEO.  I mean that kind of CEO who operates his business with larger than life personality and a passion that burns.  His zeal for earning a profit is only exceeded by his thrill at being in the airline business.

And it is a lot more than you can say for a lot of other airline CEOs today.

You can bet that Parker has received calls from a wide variety of other airline CEOs commiserating with him on this development because it was both unfair and threatening to the industry as a whole.

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A good month, a good quarter

July 20, 2013 on 1:00 am | In Airline News | No Comments

American Airlines had the exceptionally rare privilege of announcing a $220 million net profit for the 2nd quarter (American is calling it a $357 million profit excluding bankrtupcy costs.)

This is exceptional and it reflects all of the cost savings achieved through bankruptcy to date.  This number should even improve incrementally from a cost perspective for several years to come as the airline’s fleet is renewed more and capacity is grown with additional seats.

Is there  a “but”?  Yes, there is.

This is all due to cost savings, not revenue growth.  In fact, year over year, revenues for Q2 dropped ever so slightly.  While costs can drive this airline to profit, it will be revenue growth that drives this airline to real success.

Revenue growth will take from 1 to 4 years to really be perceived and I don’t expect this focus to take place until Parker & Company are officially in charge.

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The Leadership at American Airlines Group

July 19, 2013 on 1:00 am | In Mergers and Bankruptcy | No Comments

With more and more leadership announcements going on with respect to those who will have a position in the new American Airlines Group when US Airways and American Airlines merge, I see a pattern.

That pattern is that US Airways leadership is being used to provide cohesive leadership structure and certainly leave no doubt as to who is in charge of this merged company:  Doug Parker.  I’ll admit that my fears that Chairman Tom Horton will attempt to interfere are unchanged.  I think that there will be a number of attempts to direct the merged company.

Now I think they will fail.  Doug Parker is building a leadership team that clearly has its loyalties in the right place.  American Airlines leaders are being used to fill functional roles whereas US Airways leaders are being used to fill leadership roles.  There is nothing wrong with this approach.  I like it.

This is a group of leaders who will have incentive to work together and to succeed (or fail) together.  I see little opportunity to breed divisions in these ranks and I think that will only benefit the airline.  The right, successful people are in charge.  The ones who comes from a company with a winning and profitable track record will be the leaders and that is only right.

I would contrast this with the Continental United merger where it seems that Jeff Smisek willing took on way too many United loyalists.  That ship has been slow to change and correct directions when necessary and I still don’t see a cohesive team in place at United.

So, well done Mr. Parker.  This is looking like a merger with the potential to meet or exceed expectations on all fronts at this time.

 

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American Airlines Group Executive Team tells the story

June 11, 2013 on 11:14 am | In Mergers and Bankruptcy | No Comments

The executive leadership announced for the merged entities of US Airways and American Airlines (AMR) aka American Airlines Group tells a good story.

First, Doug Parker is firmly in charge.  Very firmly.  Second, Doug Parker is going to go forward trusting the team that got him where he is today.

The team is:

  • Scott Kirby, 45, president overseeing marketing, sales and operations.
  • Elise Eberwein, 48, executive vice president for human resources and communications.
  • Beverly Goulet, 58,  chief integration officer. (AA executive now)
  • Robert Isom, 49, chief operating officer for US Airways, COO for American Airlines Group.
  • Stephen Johnson, 56, executive vice president for corporate affairs such as legal and regulatory issues.
  • Derek Kerr, 48, chief financial officer.
  • Maya Leibman, 47, chief information officer overseeing technology systems.  (AA executive now)
  • William Ris, 65, senior vice president for government affairs.  (AA executive now)

Additionally, Dan Garton (CEO of American Eagle) will be leaving and I’m sorry to hear that.  I do hope that Garton may have another very good position lined up elsewhere.  He had been made CEO and President of American Eagle with expectation that it would become an independent company for him to run.  Now, not so much.

These were the right choices.  This is a real “A” team lineup.  This is not a political lineup but a real lineup of truly the best people for the positions.  Will Ris will leave soon but he’ll be of great benefit for the next few years of integration.  Beverly Goulet is essential as she knows where all the bodies are buried and she is very, very smart.  Maya Leibman is exceptionally talented and brings something that this new airline will need:  Someone who has been there and done that on reservations systems.  She’ll have the unenviable task of merging systems here and her knowledge of what has already been tried will be very helpful.

If I’m an investor or employee of the company, I am very happy about this announcement.

If I’m middle management at American Airlines, I’m a little shaken and worried for my future.

What this is not is a repeat performance of the ContiUnited merger.  Jeff Smisek went political with that merger and consented to keeping United staffers under pressure from then Chairman Glenn Tilton.  Retaining those people retained United’s old way of doing things and kept the Continental Breath of Fresh Air from entering the organization.  I’m not sure Smisek can turn it around at this point.

But Doug Parker has clearly decided to use those who do have a successful track record and who brought him to this dance.  He’s clearly positioning himself to follow the Delta / Northwest model of “how to integrate two airlines” and I firmly believe that this should cause creditors and financial analysts to get much more comfortable with the merger and its approval.

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Profits: US Airways and American Airlines

April 23, 2013 on 4:41 pm | In Airline News, Mergers and Bankruptcy | No Comments

US airways has announced a $55 million profit (excluding special items, etc) vs American Airlines’ $8 million profit (excluding special items) and that’s coming from an inferior network and an airline that is roughly 1/3 the size of American Airlines.

This is great for US Airways, great affirmation for the team that will run the new American Airlines and I do wonder when these folks will get this merger done.  My best guess is October but they’ll suitably impress me if they get it consummated by September.

This merger integration will be fascinating to watch in comparison to the Delta/Northwest and Continental/United mergers.  US Airways CEO Doug Parker and his team all have merger integration experience but none have experience with the scale that the new airline will possess.  It will be hard for them to balance the pull of the AA insitutionalization with the attraction to adopting the US Airways Way.

What I most look forward to is seeing the new airline about 18 months after the merger deal is closed.  I want to see how the AA network is reorganized and made to work by the US Airways team and Robert Isom in particular.

 

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The Court Says “No”

April 12, 2013 on 9:08 am | In Mergers and Bankruptcy | No Comments

Bankruptcy Judge Sean Lane has disallowed the $20 million kiss for American Airlines CEO Tom Horton.  Horton was to receive roughly half in cash, half in stock as severance upon his departure from the new company (to be called American Airlines Group) formed after the merger.  His departure was scheduled for the first annual meeting to be held after the merger which most believed would be in May as has been tradition for American Airlines.

I vociferously disagreed with this severance payment.  So did a US bankruptcy trustee who argued that it violated federal governing such things in bankruptcies.  After review, Judge Lane offered that the idea that this was taking place post bankruptcy and therefore not entirely within purview of the court was a legal fiction.  I couldn’t agree more.

When you get a severance of that size, it should be for accomplishing something.  Based upon all that has come to light so far on the journey of both US Airways and American Airlines, Tom Horton didn’t have much to do with the success of this agreement.  In fact, if anyone really had much to do with getting the company into alignment with markets, it was Beverly Goulet, AA’s Chief Restructuring Officer.

Horton sought to delay, obfuscate and sabotage the merger at most every point.  He has made public arguments that he’s the superior CEO to Doug Parker in semi-veiled statements made to the press.  The problem with that is there is actually no evidence of what value Tom Horton has brought to the process in approximately 16 months.

Is it the atrocious livery that has been perpetrated on those aircraft?

Judge Lane has pointed out that when the new company is formed and has exited from bankruptcy, the new Board of Directors can vote on this severance.

I have long felt the current American Airlines Board of Directors has not governed the airline well for many years.  Like so many boards recently, it has seemingly given blanket endorsements to the CEOs without regard to assessing what leadership of the company has achieved and without determining if the course set by the leadership is a sound one.

But, man, they sure can vote bonuses well.

$20 million is too much for Tom Horton and what he brought to the table.  But if everyone truly thinks it is necessary, then I would suggest that the new Board vote on it and give it to him.

I would point out that Horton not only isn’t needed to make this new airline work, he’s not wanted.  This deal doesn’t need him.

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Doug Parker did what?

February 23, 2013 on 1:00 am | In Mergers and Bankruptcy | No Comments

A couple of days ago, US Airways CEO Doug Parker and US Airways EVP Elise Eberwein went to go talk to a join meeting of the Allied Pilots Association (AA pilots) and US Allied Pilots Association (US Airways pilots).  They attempted to address concerns and foster a new relationship that would see a smoother merger get executed.

Let’s take a moment and think about this.  The soon to be CEO of American Airlines Group and a trusted US Airways executive in charge of People traveled to answer questions and address concerns to unions that will be involved with the new company.

Do you think that move would have been made by an American Airlines team?  For instance, do you think anyone bothered to go talk to TWA unions when AA bought them as an asset sale?  Do you suppose that Don Carty went and talked to the Reno Air people when they got bought?

You didn’t even see these kind of overtures being made when American Airlines needed a deal to stay out of bankruptcy just  a little over a year ago.  I would imagine that the pilots from American Airlines may have had a slightly stunned look on their face.

 

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US Airways / Amerian Airlines: The Merger

February 14, 2013 on 8:36 am | In Airline News, Mergers and Bankruptcy | 2 Comments

I’ve been reading the news accounts of the merger announcement this morning and so far I haven’t seen anyone acting luke warm over this announcement.  The usual spin is going on about hubs being maintained (probably true) and jobs being preserved (probably not as true, at least with respect to jobs in corporate or support roles) and how excellent everyone is.

One item I’ve noticed:  Tom Horton seems to always refer to Doug Parker as “my good friend”.  So much that I wonder if the knife is going to sink slowly or quickly into Parker’s back.  It’s overdone.

Top Level Summary:

The Pilots:  Yea!

The Flight Attendants:  Yea! (AA at least)

Other service labor:  yea!

They expect the deal to be worth about $11 Billion and it will require regulatory approval and bankruptcy court approval.  It’s expected that it will take about 6 months to close the deal formally.

Tom Horton stays as non-executive chairman temporarily until around May 2014.  Then Doug Parker takes over and the board member count drops from 12 to 11.  AMR gets 3 board members, US Airways gets 4 board members and the balance come from creditors.

This isn’t a merger of equals.  While it is a merger, it’s a merger where the little guy swallows the big guy.  The advantage in this merger is that the little guy knows the big guy’s business and culture pretty well.

Now, with the deal made, there is a lot of work to be done not just in integration but in planning where to use the large numbers of new aircraft due in from both Airbus and Boeing.

There has been a lot of focus on this merger but curiously no one has noticed the potential effect on another Texas airline:  Southwest.  I’ll be writing more about that soon.

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Done Deal: US Airways and American Airlines will merge

February 13, 2013 on 6:52 pm | In Airline News, Mergers and Bankruptcy | No Comments

US Airways and American Airlines will merge and the announcement will be made early tomorrow morning.  Doug Parker will be CEO and Tom Horton will be non-executive chairman of the board.

We like that they are merging but we don’t like Tom Horton’s presence in this because even a non-executive chairman wields influence and is able to engage in second guessing a CEO.  Doug Parker will be doing things very differently in this airline and that’s liable to create opportunities to sow dissent.

This will create the world’s largest airline but it won’t be the world’s strongest.  There is a lot of work to be done to be that airline and Delta CEO Richard Anderson is unlikely to make it easy for anyone to topple his airline.

More updates later.

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More is revealed: USAmerican Airways

February 7, 2013 on 12:26 pm | In Airline News, Mergers and Bankruptcy | No Comments

Digging into news items more today, I have found more explanation for this desire to have Tom Horton remain as Chairman of American Airlines.

Apparently it is the American Airlines Board of Directors who are pushing for this and some even for an executive chairmanship and in the interests of “protecting” the board on the promises of revenue synergies being promised from the merger.

What’s interesting to me is that the board, largely unchanged over the last year, wasn’t pushing for this kind of conservatorship more than a year ago.

Questions I would ask are these:

  1. Why is Doug Parker’s track record of return on investment at US Airways inferior to Tom Horton’s track record given the profits that Parker and his team have realized with an inferior airline network?
  2. Why is it preferential to put controls on Doug Parker in this merger that we wouldn’t, for instance, put on Tom Horton himself in a stand alone exit from bankruptcy?
  3. Why are AA’s interests valued so highly in this merger and US Airways interests so low?
  4. As an unsecured creditor, would I not want to see the management team in charge be the people who have the best chance for success in the marketplace and who do return shareholder value since my “payback” will largely be in the form of an equity stake in the company?
  5. And, if #4 is true, why would I want to constrain that with leadership that while fiscally good has ignored the revenue picture for 10 years or more?

I sense overreaching by the board and when I consider the composition of AA’s board of director’s, I think I know why.  AA’s board is dominated by financial interests who favor conservation of capital in all situations.  They are one of the most conservative boards you could find on an airline and most independent directors lack direct airline experience.

US Airways board is very different.  It is seeded with airline experience, entrepreneurial experience and is generally more diverse both in geography as well as industry.

Again, let me point out that Doug Parker is no fool.  He has an excellent education and has had excellent multi-airline experience which was founded on a long stint in finance at American Airlines itself and has since managed America West/US Airways for a 12 year tenure with great success in returning a disadvantaged airline organization to health despite severe industry economic challenges and ever increasing competition from very large SuperLegacy airlines.  that’s the guy you bet on and that’s the guy you don’t hamstring.

If Doug Parker or his team were foolish, unwise or inexperienced, they would not have achieved consistent successful results that largely outshine the rest of the industry.

And I would remind AA’s Board of Director’s that they chose to ride the Gerard Arpey horse and they chose to ride the similar legacy in Tom Horton with the results of a company entering into bankruptcy because of an inability to lead and an inability to generate increasing revenues.  The strategy was waiting for other airlines’ costs to rise and meet their own.  What makes you think your entity is so much more valuable today than it was 14 months ago?

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Sounds like it’s Horton / Parker for USAmerican Airways

February 7, 2013 on 1:00 am | In Airline News, Mergers and Bankruptcy | No Comments

Terry Maxon with the Dallas Morning News is reporting on the Aviation Blog there that the solid rumour is that Tom Horton will be non-executive Chairman and Doug Parker will be CEO of a merged US Airways and American Airlines.

Since Terry rarely gets things wrong, I believe that this is the almost certain outcome.

It’s likely that I will take flak for this but I don’t like it as an idea. Tom Horton as non-executive chairman would have seemed like a good compromise last May or even last July. Not now.

Horton & Company have clung too hard to their ideas and I fear that even as non-executive Chairman, he’ll wield too much influence if only by being able to second guess Doug Parker and his team.

Let’s not forget that, according to Horton, Tom Horton was the guy to think of a merger long before Parker.

And then there is the branding fiasco and multiple superfluous announcements about change, often scheduled to take place in 2017 or later.

Sorry but I think Horton interferes and prevents success more than he helps. And the Board of Directors as well as the unsecured creditors would be wise to find another non-executive Chairman before letting this happen. Ask Gordon Bethune to do it. Ask Doug Steenland to do it. Ask someone else.

In fact, I think that finding someone else to serve as non-executive chairman could be the very best thing for this company. I really do. But Tom Horton should not be the one to serve in that role. He’s a lightening bolt for controversy among employees and a potential critic of Doug Parker as he sets off to do something very, very hard in the best of circumstances.

Let me point out that if it is about wanting to reward Horton for something, there is nothing preventing the company from awarding him stock and/or options in this deal. Nothing really. Horton will work again, too. He is a very, very talented finance guy and there are companies who need his skills.

It will be much cheaper to bribe him away from this than it will be to have him hovering over Doug Parker and trying to wait in the wings hoping Parker will fail and he can take control again. Seriously, don’t do this. It hurts the chances of the merged company and at best it doesn’t help.

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US Airways / AA Merger: More

January 31, 2013 on 4:46 pm | In Airline News, Mergers and Bankruptcy | No Comments

Short version:  Non-disclosure agreements keep getting extended for more talks.  Conventional wisdom has it that most issues have a solution framework and that there are perhaps one or two sticking points.

First, who owns how much of the new entity.   The word on the street has the offer amounting to 70% of the entity being owned by AA creditors and 30% being held by US Airways shareholders.   Part of me says this is a touch inequitable but it might be palatable enough for US Airways shareholders to do the deal.

Second:  Who runs the show.  Doug Parker would seem to have the inside track based on his performance at US Airways but apparently Tom Horton (and possibly others) are making an argument for Tom Horton to be Chairman and CEO or, at the least, Chairman, of the new company.  This argument is based on the fact that Horton & Company have run a large international airline before and . . . Parker & Company has not.

Financial analysts see the consensus that this is not what should happen.   The key risks there are that Tom Horton has no employee support and particularly none from unions and lacks a certain credibility with this plan to grow capacity as much as 20% in saturated markets.  I’ll go one further:  Horton and his team have never focused on the revenue side of the business.   It’s always been about managing money and assets as opposed to growing the business.

Parker & Company have a strong reputation for returning value to shareholders, managing their operations closely and responding to problems with solutions that work.  Moreover, Parker & Company haven’t exactly been managing some 20 airplane LCC carrier either.  US Airways may not be quite the size of AA but it’s no small entity.   It’s the 10th largest airline in the world by fleet size (AA is 6th).  In Revenue passenger miles, US Airways is 11th and AA is 2nd.

US Airways does fly a number of international routes.  They just don’t fly to quite as many destinations or with as much frequency.  It’s not like Doug Parker doesn’t know how to establish a route to a South American city.   His team established a route from Charlotte, NC to Rio de Janeiro, Brazil and made it work.  That’s saying something and I want to see what they can do with AA resources.

I also think that the Horton Team just might have overplayed their hand recently with these rapid fire introductions of branding, uniforms, aircraft liveries, etc.  These acts were, in my opinion, designed to help bolster their argument that they should be in charge.  Now I think they are starting to sound shrill and I think many who care (such as the unsecured creditors) aren’t impressed with this team putting the cart before the horse several times over the past 2 months.

At this point, I rate a merger probability as nearly certain.  I think that the most that will be given to Tom Horton is a non-executive Chairman role (such as Glenn Tilton) set to expire after a few years.  Maybe.  If he stops futzing around.  I think many very capable AA executives will be retained.  I think some won’t be.  The truth is that there is a rich garden of talent at AA that can be mined.  There is a reason why Virgin Atlantic hired their next CEO from AA and why Virgin America got theirs from AA too.

I think we’ll hear the merger announcement sometime between now and February 15th.  That’s a pure guess on my part based only my sense of timing and mood in this affair.

The only thing that could make me happier in that announcement would be the news that that awful livery will be stopped and redesigned immediately.

 

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US Airways makes the argument without saying anything.

January 23, 2013 on 12:02 pm | In Airline News, Mergers and Bankruptcy | No Comments

While reporting and commenting on both 4th Qtr and 2012 earnings, US Airways CEO Doug Parker emphatically stated that they (US Airways) had nothing to say about a merger with American Airlines at this time since they continue to operate under a non-disclosure agreement.  All of this is right and proper and I must say that I have been impressed that all parties seem to be honoring this pretty well with the exception of AA CEO Tom Horton who continues to say a lot without saying it by making passive-aggressive comments at each public event.

But Doug Parker and his team haven’t had to say much vocally because their performance, once again, continues to make the argument for them.

$37 million profit in the 4th Qtr despite Hurricane Sandy impacts and this contrasts with Delta announcing just $7 million.  Revenue growth of 3.9 percent in 4Q as well.

A 2012 profit of $637 million on record profits of $13.8 billion.  Again, this contrasts with a profit of $71 million for 2011.

These guys are killing it and they know it and this has to be getting the attention of creditors and other bankruptcy stakeholders.

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US Airways and its pilots

January 7, 2013 on 1:00 am | In Mergers and Bankruptcy | No Comments

In the conversations that take place regarding the US Airways / American Airlines merger opportunity, naysayers within both companies frequently end up being the pilots.  The minority groups of these pilots like to ask for (demand) firm agreements on seniority integration and point to Doug Parker and his team being unable to achieve seniority integration for US Airways pilots since the America West / US Airways merger of 2005.

That’s really not true.  The history there is bloody but it really is the fault and responsibility of the pilots involved that combination.  Here is what has happened:

America West and US Airways pilots were both represented by ALPA.  As such, when the merger occurred there was a mechanism in place at ALPA to arbitrate such a seniority integration.  There were many issues but the overriding viewpoints on each side were centered around a couple of things.  America West pilots felt they deserved to have their seniority (and job opportunities) guarded to some fair degree because it was their airline that was consuming US Airways which had been in bankruptcy not once but twice in the same decade.  That was a reasonable viewpoint and it could have been handled by using “fences” to protect some percentage of jobs for those pilots.

US Airways pilots wanted a date of hire seniority integration because their pilot group had some very old, very senior pilots who didn’t want to be knocked down from the premium pilot opportunities.  Since these pilots had agreed to major wage concessions in two bankruptcies, they felt they had given enough at that point.  This wasn’t entirely reasonable but it wasn’t entirely unreasonable either.

In the arbitration discussions, US Airways representation basically went “hardline” and drilled in on a date of hire seniority integration and avoided discussing any ways to come to a compromise using mechanisms that would give each side some protection and some opportunity.  Fencing routes and/or aircraft was one way this could have been handled and the most senior of each pilot group could have had their retirement protected reasonably well.

But the hardline negotiations on the part of the US Airways group led to the arbitrator having to make a tough ruling that blended each group with a relative date of hire integration.  This solution had some fairly junior America West captains sitting in front of some fairly senior US Airways captains (as an example.)

US Airways pilots went livid and used the nuclear option.  They held a new union representation election and formed a new independent union called USAPA.  They were able to do this because they actually outnumbered America West pilots.  Essentially, US Airways pilots didn’t like the binding arbitration and had a rare opportunity to stick it to everyone and did so.

This breakaway and the lack of seniority integration has been litigated in court ever since between the two pilot groups.  Doug Parker and his executive team have very wisely stayed far, far away from this problem the whole time.  They’re not even sure who they should legally engage in negotiations with and have (rightly) offered the opinion that the pilots had to get their act together first.  The pilots have been unable to do so for more than 5 years.

Frankly, my own opinion is that a court should have made a decision that looked like this:

  • The pilots may organize in any way they wish including creating an independent union.  However,
  • The pilots must integrate according to the ALPA/Nicolau seniority integration arbitration decision before anything else occurs.  Binding arbitration that results in a decision should be enforced otherwise binding arbitration isn’t binding.
  • After the seniority integration is implemented, the pilots may work out their contracts and future seniority issues among themselves and with the company leadership.

Under that scenario, no one gets their cake and the chance to eat it too.

Now, there is a reason why most pilots actually view the US Airways / AA merger as a good thing.  There is now federal law which governs a seniority integration which didn’t exist when America West bought US Airways.  This law works fairly well.  Not perfectly but it does get the job done and that’s important.

American Airlines pilots are very senior and know that under that federal law they’ll do pretty well.  If they do pretty well and the new airline is successful, their future is pretty secure and that’s what a pilot wants.

America West pilots know that they’ll do pretty well because the merger framework pretty much raises their incomes to levels never thought of before because the baseline for those wages will be AA pilot wages.  Even if they lose some positions in seniority, everyone makes a lot more money.  Best of all, USAPA almost certainly goes away as a union and that is an emotional win for America West pilots.  (I would argue that while USAPA is pretty awful as a union, they aren’t exactly upgrading big with AA’s Allied Pilots Association.)

US Airways (Old) pilots are very senior and know that they’ll do pretty well under the federal law as seniority integration goes and they, too, get a big raise.

All three parties in this know that they don’t have to deal with a multi-year mess of seniority integration if this deal is made because the McCaskill Bond statute provides adequate framework for a fairly timely seniority integration.  No union leadership in this battle has to “fight” because there is only so much that can be fought for under the law now.  Notice that in the United / Continental merger there really wasn’t much “fight” between the unions as there were few areas where any “fight” could occur.

So despite the naysayers predicting a mess of seniority integration, that’s not really true.  It will happen and the worse case scenario is that everyone gets a pay raise and gets a fairly secure future with an airline that can compete globally.  More so, Doug Parker and his team also know this and also know that if they present a deal that gets everyone a bit of what they want in a worst case scenario, they’ll be integrated in fairly short time.  They can do this deal and succeed in the labor area without much fear and most creditors know this by now.

 

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AA / US Airways Merger

January 4, 2013 on 1:00 pm | In Trivia | No Comments

I’ve watched this unfold much as anyone else has and there is one peculiar observation I have.

Am I the only one to notice that Doug Parker & company have largely kept their mouths shut in the merger process while virtually all other parties keep trying to find ways into the public eye?

Am I the only one to notice that AA CEO Tom Horton seems to be working overtime to speak about this merger opportunity?

We continually here Tom Horton portray himself neutrally when speaking to news media.  Yet when he has an opportunity to make a company communication, there is always a tone that leads me to believe that he’s less than happy with the merger idea being pressed upon him.

And it is curious to me that Horton’s “private” comments about the merger opportunity get leaked to the press pretty frequently whereas Doug Parker and his team really have largely just kept their mouths closed.

I’m tempted to think that Tom Horton protests too much in this and tend to interpret his behavior as somewhat desperate.  This may in fact not be the case at all.  The truth is, what’s going on behind closed doors is pretty much unknown by all.

But the more I notice Doug Parker’s silence, the more I think that he’s managed to pretty much corner this deal and it is his to lose at this point.

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AA / US Airways Merger Mania

December 19, 2012 on 3:00 pm | In Airline News | No Comments

As the clock ticks towards the end of the year, more and more people are weighing in on the potential American Airlines / US Airways merger that’s been cooking for a few months now.  I have a few thoughts on this:

1)  It is curious to me that Tom Horton continues to describe himself as neutral on the merger idea on the one hand but also argues for a post bankruptcy merger any time the door is theoretically closed at a meeting.

2)  The fact that the pilots have been engaged on this leads me to believe that an offer is imminent.

3)  If an offer is imminent, someone has found a way to let Tom Horton exit gracefully.  I’m guessing the plan here is something similar to what Glenn Tilton got in the ContiUnited merger.  I’m also guessing that Tom reckons that if Doug Parker blows things, he may yet be able to step into the CEO role again.

4)  Not all pilots are eager for this.  There is a new blog started by about 35 AA pilots, mostly captains and mostly from the DFW base.  The fact that most are captains from the DFW base leads me to believe that these are fairly senior captains who may feel a touch threatened with respect to retaining their seniority against similar US Air (EAST) pilots.

Seniority is going to be a touchy issue for pilots and other crew.  It won’t be Delta like in the integration largely because rational thought isn’t in place for either union involved (APA or USAPA).  If this were an ALPA/ALPA integration, the odds for a smoother integration would go up.

You know what?  Smooth or unsmooth, it doesn’t really matter.  US Airways has already proved it knows how to run a split operation.  Furthermore, there is now federal law that will govern a seniority integration in this case and that should prevent a USAPA-like embroglio.

Some pilots from both unions point to Doug Parker and US Airways not being able to integrate their employees in the previous merger and that’s not quite true.  There was an arbitrated decision that very senior US Air (EAST) pilots threw a temper tantrum over and tossed out by electing a new union organization.  Parker & company couldn’t even be sure who to negotiate with for the last several years much less solve a problem.

Parker & company keep making offers to US Airways flight attendants and they keep voting them down asking for more.  And who wins in those situations?  Parker & company.  Because the NLRB won’t let the crews strike and does keep the new agreements coming which proves that progress can be made and that therefore justifies not letting the unions strike.  Meanwhile, US Airways keeps paying the old rates.

At some point, you need to make the deal you can get, not the deal you want.  US Airways crews haven’t been able to get their act together to realize that much less make it happen.

I rate a merger announcement as 80% probable at this point but I’m not sure that I agree that it will happen before the end of the year.  I can see this deal getting announced in the 2nd week of January, however.

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Horton Says Merger Partner Could Be Decided Soon

August 15, 2012 on 1:00 am | In Airline News | No Comments

American Airlines CEO Tom Horton told the Financial Times that an American Airlines merger partner could be decided within weeks.   In the Financial Times story, Horton also reiterates his claims of being a consolidation advocate before it was cool to be one as well as that he suggested a US Airways / AA merger before Doug Parker did.

Want to know what I notice?  US Airways and Doug Parker have gone radio silent.  They have been largely radio silent for a few weeks now.  Despite Horton’s Weird PR Trip, Parker & Company are nowhere to be seen.

And that does not mean that US Airways is having second thoughts.  It’s not the snake you hear that bites you.  It’s the snake that you don’t hear and don’t see that gets you.

I also note that Tom Horton is sounding very shrill these days.

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