satpak77

So what does this mean? After reading the article I still don't see any "winners" after (if it happens) the merger. Maybe I am missing something.


US Airways Exec: AMR Merger Would End Pilot Seniority Mess - TheStreet

CHARLOTTE, N.C. (TheStreet) -- US Airways (LCC_) President Scott Kirby said a merger with AMR (AAMRQ.PK) would resolve the pilot seniority battle that still simmers following the 2005 merger between US Airways and America West.

"The solution to that issue is if we are able to get this deal done," Kirby said Thursday, speaking at the Bank of America/Merrill Lynch investor conference in Boston. "I think this is the way out of the box (because) this is a way to have a fresh beginning."

A merger deal between US Airways and AMR would involve pay raises for US Airways pilots as well as a better deal for American pilots than what AMR management has offered. A merger would create incentives for pilots on both sides to back the deal, especially given that one would be expected to produce more than $1 billion in revenue synergies, enabling American to better compete with Delta(DAL_) and United(UAL_).

As for the seniority issue, Kirby said what Dave Bates, president of the Allied Pilots Association, already has said: The 2007 McCaskill-Bond statute creates a path to a resolution because it mandates binding arbitration.

"Our union and APA will have a joint contract and we will have that on the day we close the merger," Kirby said. "Then more than likely, seniority will go through the process, go through arbitration."

The 2005 merger deal stalled, he said, because of a requirement that the two pilot groups negotiate a joint contract. That has not happened because the two groups could not agree on seniority despite a ruling by an arbitrator. "The side that didn't like it could prevent a joint contract," Kirby said. In the current effort, by contrast, the process would produce "a joint contract in advance" of the merger, he said, with the seniority details to be resolved later, but with an agreement to resolve them firmly in place.

The 2007 seniority ruling by arbitrator George Nicolau was so controversial that it resulted in US Airways pilots voting to leave the Air Line Pilots Association, their union for 57 years, to create USAPA.

Flyby1206

It is a way to get another binding arbitration for seniority lists, and as long as the majority (APA pilots) are happy then it will stick and the world will move on. If there were more AWA pilots than US pilots in the original merger, then there wouldnt have been a USAPA or any continued fragmentation of the labor groups. I'd be terrified if I was a west/east pilot, but APA will come out on top regardless of when the merger happens, pre or post BK.

satpak77

Could you expand on this? Side question to the audience, will this merger "benefit" LCC and thus result in a rise in stock price or will it hurt the stock because (maybe this reason...) LLC is being "saddled" with various AMR issues.

Legit questions, I am working on my MBA and just finished a project on the airline industry and thus I am interested to hear the opinions.

cactusmike

The APA has a majority of the group 4 and group 3 jets (the wide bodies). In every seniority integration that has gone down in the past 30 years that has been taken into account by the arbitrators or negotiators. The APA will get a majority of the slots for those jets because of the ratio of LCC wide bodies to AA wide bodies. Group 2, the 737/a320 series and the Mad Dog will most likely have a closer ratio of LCC pilots to AA pilots, but the sheer numbers of AA pilots will ensure that they have a majority in that category as well.

Flyby1206

Cactusmike nailed it with the "APA coming out on top" sentiments. The sheer size of the group will ensure they are pandered to.


As far as the outcome, I think it will benefit LCC in the sense that it will no longer have the economy of scale issues, but it will have issues that it doesnt have today. LCCs CASM is super low for a legacy carrier, and they benefit greatly from that, making their less than ideal hubs work well for them. Add in AMR's mass and the anticipated labor cost increases (Parker's term sheets) and I dont think some of the US hubs will be able to sustain the traffic they do today. I could easily see PHX disappearing, and PHL cut in half. DCA is a great business market, but I dont see a lot of expansion there. CLT will no doubt be a good fit as a domestic hub in the southeast to give ATL some competition.

As far as the stock price goes, it has gone from roughly $4/share to $11 in about 6 months. I think any merger announcement is already baked into the price. Post merger it will depend on how quickly Parker can get the ducks in a row, and grow internationally, Asia in particular. Even if all goes well I cant see the combined AA/US stock going anywhere for at least 3-4 years. Look at the 5yr chart of DAL. The stock post-BK was close to $20 and since then it struggled to stay above $10, and DAL has done an amazing job of integrating NWA/DAL and getting things organized post-BK.

FlySlow

LCC stock: it's up 100+% for the year...due to merger...high(er) risk at this entry point. Though today's selloff makes it a decent entry, with stop around 9.50'ish...

LCC stock will probably be gone and re-issued as...maybe AMR...as this will be some kind of stock deal, I'd say...(LCC does not have enough $$$, so paper (stock) will have to used.)

satpak77

yes LCC stock has kicked a** this year. I doubt anyone else's airline stock can claim the same. Good job guys

MayDaze

I'm an east pilot and I don't even see Phoenix "disappearing". Phoenix is the 5th largest city in the nation, has no airspace conflicts, good weather, and an efficient operation. True, there will be some redundancies with DFW and LAX but we're not going to drastically reduce the number of people we carry in the combined airline. PHL won't be cut in half because it's not slot restricted like JFK, so it's easier to feed the internationals. DCA is a huge money maker and we would jump to expand there but it is slot restricted. This is were the DOT will probably look at during the merger.

The industry has been consolidating for a while now and we're about at our saturation point. I know it's the popular thing to speculate on what bases will "disappear" but Airways already closed LAS and BOS a couple of years ago.

The airline industry as a whole has been setting up for this stretch since deregulation. Excluding extenuating circumstances (spikes in oil, terrorism) I would say the industry should make money for it's investors into the next decade.

cactusmike

Lots of "experts" said SLC would close for Delta after their merger and that hub is still going on.

If you close PHX you give up the ity to SWA. I don't see that happening. MayDaze makes most of the other good points. PHX has a lot of hi tech companies with operations here. There is a strong business market in addition to the large leisure market.

PHX also provides a lot of longer routes to other cities. If you take PHX out of the mix in our present operation the average stage length would go way down which drives up your costs. Kind of why the old US Air had a difficult time before. Short stage lengths and high costs do not work well anymore. Our load factors have been very strong out of here, which may be a factor of what fares are sold, but indicates that we do have a healthy market here.

We really do not know, however, so we will have to see what transpires. I am still only at 75% personally for believing this will all go through.

Flyby1206

No doubt PHX has been good for US, but I wonder what would happen to it when placed between a DFW fortress hub and the LAX focus. I personally don't think there is enough room for all three to survive long term. A combined US/AA will still have a large presence in PHX years to come, but it will dwindle. 5yrs after the merger i think it would be on the same level as CVG/MEM are for DAL