American Airlines and US Airway’s Merger Essay
American Airlines and US Airway’s Merger
American Airlines has suffered tremendous profit losses over the last few years. The losses have been so great that the company filed Chapter 11 bankruptcy. The news for the Chapter 11 bankruptcy protection was a shock to many, considering the fact that they had enough money to operate and cover their losses through the following year. The merger indeed was great decision on behalf of American Airlines. The merger itself was questionable. The Department of Justice filed a lawsuit against regarding concerns that it could raise prices for consumers. A settlement was reached and the world largest airline has been formed.
American Airlines has been suffering for many years. The company has suffered more losses than profits. Jobs have been cut; benefits have been scaled back, and the pilots of American Airlines are paid a lot lower salaries than their competitors. Many of them have been furloughed. All of these and many other factors have contributed to American deciding to create the world largest airlines with US Airways. In this essay I will discuss the circumstances that resulted in the merger, assess the significant positive (or negative) effects of the merger, and examine the organizational structure that has resulted from the merger. American Airlines filed for bankruptcy in November 2011. According to an interview with Richard Quest of CNN, Thomas Horton the new CEO of American Airlines stated that the company was forced into bankruptcy because of the cost disadvantages it faced compared to it’s competitors that had already gone through a bankruptcy. The news came as a shock to many. The company had enough money to sustain the losses that it may incur through the next year.
Although the company had the money to operate, the company still decided to go through with filing for bankruptcy (Isidore & Ellis, 2011). At one time American was the world largest carrier, it had dropped to third in the recent years. The company has reported only one quarter where a profit was made since 2007, and lost 4.8 billion over those three and a half years. The company was projected to continue to suffer losses. Now that the merger has been approved, American will be able to get themselves out of their Chapter 11 bankruptcy protection (Isidore & Ellis, 2011). Now that the merger is complete, the new American Airlines has ordered over 600 new aircrafts that are updated and more modern. The new aircrafts will allow them to compete with their competitors. In the past they have lost a great deal of money from their business class travelers due to their lack of the amenities that their competitors carry on their aircrafts (American, US Airways reach merger deal., 2013). The two joining airlines will offer over 6,700 daily flights to 336 destinations in 56 countries.
The merger will not distress any of the hubs presently served by American Airlines and US Airways. American Airlines has been in bankruptcy for a little over a year, and the merger will be effected pursuant to a plan of reorganization under Chapter 11. “The combination of American and US Airways brings together two highly complementary networks with access to the best destinations around the globe and gives us a strong platform to provide our customers the most connected, comfortable travel experience available,” Horton said “The operational and financial strength of the combined airline is expected to enable continued investment in new products and technologies and will create exciting new opportunities for our people, even as we deliver strong cash flow and sustainable profitability.” (American, US Airways reach merger deal., 2013). The merger with Us Airways allowed American Airlines to come out of the Chapter 11 bankruptcy in December. Being able to do so was the first time that a major airline has been able to satisfy a bankruptcy with a return on equity for its shareholders. By deciding to partner with a smaller, but stable US Airways, the company was able to raise the value of the combine stock. Pursuant to the plan of reorganization, so-called double-dip, single-dip, and intercompany claims were settled through a delivery process which distributed the proceeds of America Airlines’ estate based on the trading price of the new company’s common shares.
This quick fix solution lessens the opportunity of appraisal disputes by guaranteeing creditors got a current market value. When it was all said and done, American Airlines creditors, including its unsecured creditors were given payment in full. For the first time in a major airline reformation, shareholders were able to accept a return on their equity. The approved stock exchange merger left American Airlines shareholders with 72% of the new company and the US Airway investors with the lingering 28%.US Airways decided to do what most company who are going through a merger wouldn’t. They negotiated with American Airlines unions before finalizing the merger. This established a foundation of a cooperative negotiating agreement for the new company, so that labor disagreements would not disrupt or lengthen the merger development. Following numerous noteworthy airline merges it was predictable that the formation of one of the world’s largest carriers would raise some anti-trust hurdles. The first curtailed from the US government. The airline seized a proactive tactic, agreeing to surrender some of it apertures at airports around the US, leading to court approval of the merger (Thomas, 2014).
Although the two companies have merged and are legally one entity, they have both agreed to operate separately until they can integrate both systems successfully. As with any merger, both sides will suffer losses of their employees. Majority of the top leadership positions will be held by US Airways top executives in the new American Airlines. US Airways CEO Doug Parker will head the merged carrier. Of the top eight executive positions, five of those positions come from the US Airways’ side. American CEO Tom Horton will be the chairman of the board, and will continue on through until the first meeting of the new board next year. Parker will keep the executives that he is more familiar with. The new leadership team includes US Airways President Scott Kirby and others who have worked alongside Parker for several years (American and US Airways name merged airline leadership, 2013). American Airlines has suffered tremendously over the last few years.
Us Airway which is a smaller company, was in a better position financially than American. Although Us Airway was more stable, they didn’t have access to many of the locations that American Airlines did. The merger was a great idea for both. American was able to get out of their Chapter 11 bankruptcy protection earlier than anticipated. They have switched over from the Star Alliance and move to One world global alliance. The new company now has over a 100,000 employees worldwide. Nothing but positive results seems to be coming from the merger of the two. In the beginning, the merger was questionable, and the Justice Department along with six other states filed a lawsuit against the company. The reason for the lawsuit is that they were in fear of the creation of the world largest airline raising prices on travelers. The slight raise in ticket sales, fees for flight changes, check bags, would be detrimental to consumers.
American Airlines and US Airways were able to settle the suit and bring everyone to ease. In summary, the merger has run smoothly thus so far and according to plan. Currently both companies are operating individually although they are legally identified as one entity. The companies are working to collaborate their systems together as well. At the point in time, they are honoring each other’s flier miles and plan. Some of them have been eliminated to coincide with the polices of the company. American Airlines decided to merge with Us Airways to regain its place as the world largest airline. The reason for the merger has been negative on American’s side, but will benefit their company in the long run. In my essay, I have attempted to explain In the circumstances that resulted in the merger, assess the significant positive (or negative) effects of the merger, and examine the organizational structure that has resulted from the merger.