Category Archives: mergers
In what has to be the most anticipated non-surprise event in the commercial aviation world US Airways and American Airlines agreed to merger. The new airline will be called American Airlines and will headed by Doug Parker. American’s creditors will own 72% of the new company with the remaining 28% going to US Airways stockholders. American CEO Tom Horton will stay on as non-executive chairman.
The deal still has to pass US Regulatory approval and the bankruptcy judge.
Who doesn’t love a Ryanair story. Ryanair famous for charging for everything, landing in airports nowhere near the city name on the ticket, and for their mercurial CEO is in the news again. The European Commission is set to reject Ryanair’s latest hostile takeover bid for Aer Lingus. Ryanair is currently a minority owner of Aer Lingus and they have for sometime wanted to take over the entire operation. It looks like that is not going to happen if the EC has their way. CEO Michael O’Leary, who I suspect runs on Jet-A, has issued orders to appeal the EC’s decision to the courts.
I don’t know about you, but I look forward to the day when I can fly Ryanair Trans-Atlantic for one pound fifty.
So yesterday one news agency reported that AA and US were getting close to inking their merger deal. Then every aviation blogger and news agency that cared repeated the same information. For the most part they got it all wrong. Now Doug Parker and his merry gang of US executives have been searching for a merger partner for years. They tried to buy Delta in bankruptcy, United started talks with them when Continental balked at merging (The CO board overrode then CEO Larry Kellner’s refusal to merge, ousted him, installed the current CEO Jeff Smisek and inked the merger deal with United), and now they are working on American.
Right now we know that American and US Airways are doing the due diligence, and these talks have been going since 2010. While the preliminaries of a deal are in place, both board of directors have to approve the deal. Also in the case of American Airlines the creditors committee has to approve the deal. Neither board is scheduled to meet soon as far everyone knows and getting a deal through the creditors committee is no sure thing. AA has made repeated statements on how it wants to remain a stand alone airline.
It’s easy to see why AA wants to remain independent. Doug Parker is a controversial figure in American aviation. Doug Parker has to be one of the most capable airline CEO’s in the business, coming in second to Gordon Bethune. However, the decisions he has made have been universally unpopular with both staff and customers. But they are popular with the shareholders. By virtue of that fact, it is clear that if the companies merge Doug with take over as CEO of the combined airline. That is not something AA executives and staff want as cuts will be coming.
So here are the courses of action possible.
If the AA board rejects the merger, then US airways can pitch the merger to the creditors committee themselves. US bought a nominal amount of AA debt to gain access to the committee, though they do not have enough debt for a seat at the table, they do have access. If the committee green lights the US buy out plan for AA then AA board gets de facto fired by the bankruptcy judge and AA ceases to exist.
If the AA executive suite rejects the merger and the board green lights it, expect to see what happened in the CO/UA merger. The CEO will get fired followed by a joint merger announcement. Then as long as it passes the creditor committee then it goes through.
With either option the creditor committee will have the final say. But until news happens, everyone calm down ok?
If you haven’t been following the European aviation industry, there was a proposed merger between BAE Systems and EADS. I say was because German Chancellor, Angela Merkel blocked the merger. BAE systems is a large British defense firm. While primarily a British company, their US subsidiary is one of the largest DoD contractors. EADS is the parent company of AIRBUS and is a joint French/German company. On paper this was a match made in heaven, and why the Economist in the link below was non-plused as to why the merger was not approved.
BAE Systems is a large defense contractor. Through “Special Security Agreements” the company is allowed to do business with the U.S. DOD. As such the BAE provides everything from avionics to personnel carriers. They were in commercial aviation as recently as 2006. In that field they are known for the Bae-146, a four engine regional jet. You still see those planes in service. Offhand Swiss is one of the type operators. This merger would allow BAE to re-enter the commercial aviation market with a much stronger product line. Personally, I met one of BAE’s lobbyists on a flight to Austin. Nice guy and a Flyertalker to boot. On the other hand, EADS also stood to gain a lot from this merger. First, they claw back some of the defense market. Their current offering the A400M and A330MTT are not popular. A couple of years Airbus won then lost the contract to replace the US Air Force KC-135 tanker fleet. The merger with BAE would give EADS a better foot hold in the U.S. defense market and put them is a position to compete against Boeing. Airbus broke ground on what will be an A320 assembly line in Mobile Alabama. That facility can no doubt be expanded to manufacture and assemble military aircraft.
While the benefits of the merger were clear to company management and owners, the German government did not see it that way. Angela Merkel rejected the merger for unknown reasons. The Economist speculated the merger was rejected for nationalistic reasons. If that is true it marks a split be the French and German governments, while this fits historically (See WWII for more information) recently they have been on friendly terms. A split between Germany, the largest economy in the EC and France, another large economy, would be bad for the future of the EU. While the political effects will be felt in the EU, the practical effects of the failed merger will be seen in US.