Industry Mergers

1) Describe a post-1978 merger. Include basic details, such as name of the companies, reason for the merge, challenges of the merger and consequences or benefits of the merger (such as furloughs or new routes, for example).

I decided I’ll go ahead and discuss the Delta & Northwest merger since it's something that's recently occurred. On September 26th, 2008, the merger between Northwest and Delta had officially been approved by both Delta and Northwest shareholders. The airline would form to become the largest airline in the world. Name wise, Delta and Northwest obviously share two different names. Comparing the two, it's very clear why Delta was chosen over Northwest. Northwest, after all, has a connotation to its name denoting it to a specific region (or area), while Delta is a relatively neutral name with no geographic specification. The Delta name was also chosen because it had more global brand recognition. While Northwest flew to Asia (and had a more extensive network in Asia than Delta, pre-merger), the Delta name was far well known in Europe, South America, Middle-America, Caribbean, and the Middle East. This is simple marketing; choosing a name that has more brand recognition is obviously a no brainer; combine that with the neutrality of 'Delta' (no geographic association) and it's a win-win situation. The reason for the merge is the reason for most mergers; money, and in this case, bankruptcy for both airlines. Both airlines had subsequently filed Chapter 11 bankruptcy protection years prior to the merger. The merger came about as part of both companies restructuring. Their route networks were highly complementary; Northwest dominated the upper Midwest, northwest, some parts of the Midwest, Asia, and a few routes into Europe (primarily their Amsterdam hub). Delta had a wonderful network that dominated the south, west, southeast, east, and northeast (New York markets especially). Europe was well covered by Delta, too. Their routes were highly complementary. Both carriers were Skyteam members (an airline alliance), too. The merger only made sense. I wouldn't say there were significant consequences of the merger, other than like any merger, there are many challenges to be overcome. The integration of the separate flight attendant and pilot seniority lists is probably at the top of the list in terms of challenges. Delta and Northwest were able to come to an agreement on merging the pilot seniority lists from two to one, however merging the flight attendants was a nightmare. The Northwest flight attendants were unionized, and the Delta FA's were not. Only recently were the two flight attendant unions combined, following a national mediation board decision (click here for details), nullifying any future disputes between the groups. Benefits of the merger, well, greater utilization and cross-fleeting for one. Maximizing efficiency on routes by utilizing northwest’s fleet of primarily Airbus aircraft with Delta's all-Boeing (or McDonnell Douglas) fleet. New routes weren’t established immediately but have been slowly established over the last couple years. Extensive expansion has occurred out of New York, where Delta has really established the 757-200 (ETOPS 757's) for transatlantic operations. Significant expansion from New York and Atlanta to Africa and the Middle East has occurred. For the most part, the largest change has been the shuffling of aircraft around the various hubs. Salt Lake City (a Delta hub) is now a relatively large Airbus-hub; Atlanta is where many of the DC-9 flights went; a few Saab 340's were shuffled to Atlanta. Delta placed their 777's and 767's out of Detroit on several Asian and European markets. As evident, the shuffling of aircraft has been and still is quite extensive.

2) Describe a current merger - i.e. one that is in the process. Some choices would be United/Continental or Southwest/AirTran, but you aren't limited to these choices if you can find others. Answer the same questions listed in 1).

The Southwest Airtran merger is one of the latest mergers to come about in the United States. The merger is one that makes sense, given the fleet and route structure of both carriers. The combined airline is to be called Southwest; after all, Southwest is a more recognized brand, is the present-day larger airline amongst the two, and has an extensive history dating back to the late 1960's (1967 to be exact). The reason for the merger is relatively simple; what's the best way to eliminate your competition? Buy them. And Southwest had the money to do so, a $1.4 billion dollar purchase, respectively -- Southwest to Buy AirTran for $1.4 Billion. AirTran wasn't a -huge- competitor to Southwest, but still a large enough nuisance. Over the last few years, AirTran began a small mini-hub out of Baltimore (BWI), a large hub for Southwest, often overlapping several Southwest routes. It's also important to note that Southwest likely recognized the need to become a larger airline, and fast. The merger was announced only days after the United - Continental merger. Considering United and Continental were to merge, and taking into account the newly merged Delta airlines, Southwest would be a considerably smaller airline than it ever once was before. The merger made perfect sense from a logistics standpoint, too. AirTran's largest hub is featured in Atlanta, equally the super-hub of Delta airlines. By acquiring AirTran, they now complete a full route network spanning across the entire continental United States, gaining critical access to the Atlanta network, also. Logistically, the two airlines fit together like a perfect puzzle; Southwest operating a fleet of 737-300, 500, and 700 aircraft, as compared to AirTran and their Boeing 737-700 and 717 fleet. The only minor nuisance being the 717 fleet that'll come with the AirTran acquisition. Presently, plans are to keep the 717 aircraft, painting them into the Southwest livery and incorporating them into the Southwest route network, however there's a lot of speculation in the industry that the 717's will only be around for a short time. Southwest has always operated under the guise of the Boeing 737 family-line of aircraft; something that allowed them to offer decreased 'turn' times (time spent in-between flights at the airport off-loading and on-loading passengers). Keeping the 717 aircraft makes sense, temporarily, so as to not discontinue certain markets or reduce frequencies, until more 737's enter the fleet.

Challenges of the merger are relatively few, besides the usual challenges of merging together two airlines. One operating certificate is expected to be obtained/completed in early 2012, with the full integration of both airlines slowly taking place over the next few years (probably through 2015). Route structures are complimentary; obviously there's no need to place a Southwest 737 on an AirTran route, when AirTran is already operating (likely) a 737 on that route. Relatively little fleet movement will be necessary, besides the 717's, which make go to a few different markets. AirTran also operates to a few international markets, such as Cancun. It remains to be seen whether Southwest will retain these international markets, or abandon them all together. In the short run (such as this year), much will likely remain the same, with much of the work going on behind the scenes (management, operations, certificates, department of transportation, etc.). Southwest is viewed in the industry as one of the premier airlines to work for, featuring some of the best working conditions, pay rates, and other amenities, therefore little fuss is coming from the AirTran side of operations. The merger should be a smooth process. Customers of the new 'Southwest Airlines' won't see much of a change, it'll be the same old Southwest airlines. AirTran customers, however, should enjoy the absence of baggage fees (presently charged by AirTran), likely lower fares, and the better overall service offered by Southwest.

3) Describe the future of American Airlines. What lead to bankruptcy? Who's interested in merging with them and why? What do you predict for the future of this company?

American Airlines is one of the newest airlines to enter into bankruptcy. Future wise, anything goes, really. While I’d hate to see the historic American Airlines name disappear, takeovers or bids for bankrupt-based airlines are relatively common in the industry. Just yesterday, both Delta Airlines and US Airways have hired investment advisor firms to look into the possible acquisition of the airline -- American's Bankruptcy Fuels Merger Talks. Clearly, both airlines are at least questioning the possibility to make a potential bid for the airline, provided the findings of their investment advisor firms. Why would they be interested? To gain greater market share at a bargain price. Though, American is such a mess and looking at their fleet (1/3rd of which are MD-80's), it's not really an ideal airline for a takeover. Nonetheless, it's hard to say what the future of American Airlines will be. If you look at the past decade, some airlines have come out of bankruptcy (United in 2005, for example) without being acquired by anyone. Others, particularly most recently (i.e.: Northwest & Delta), have been acquired and/or merged. American has stated that one of their primary goals in bankruptcy is to lower their labor costs -- American Files for Bankruptcy. The fact that this was mentioned says that this is one of the major contributing factors that led to their bankruptcy. Moreover, their very-aged fleet of 200 McDonnell Douglas MD-80 aircraft is completely decimating their profits due to the aircraft's poor fuel efficiency. Considering that the MD-80 aircraft makes up a third of the airline's fleet, and offers some of the worst fuel economies of scale, is another factor that significantly impacted the bottom line of American Airlines. What do I predict for the future of American? To be honest, I have no idea. It's far too early to speculate. Either they'll be bought out and/or merged, or, will turn around on their own (unlikely for a long time), or they'll simple liquidate, dissolve, and cease to exist (think Eastern Airlines).

4) Looking at these mergers throughout history, how do you see them affecting your future - either in aviation management or as a pilot. Keep in mind- you don't have to have interest directly in the airlines to answer this question.

The mergers can affect your future in the aviation industry in various ways. It could mean job creation, or fewer jobs, depending on the economy. Most importantly, it could mean furloughs (in a poorer economy), and the lack of available jobs. Merger's and changes in the airline industry are very commonplace. The industry has been quite liquid following the deregulation of the airline industry in 1978. It's very much an 'ebb and flow' industry based on the ebb’s and flows of the economy. It tends to follow the economic trend of the national economy. I don't think mergers or acquisitions are much of a concern when you're looking at future jobs in the industry (such as if you're presently a student). They're more of a concern when you're employed (or already in) the industry. Otherwise, there's really little difference between United and Continental (separate entities), and United (merged -- one entity), when you're looking for a job. It's not as if United merged with Continental and initiated a drastic cutback in route structure and company organization (thereby eliminating jobs). The purpose of a merger is to garner a profitable airline. If you're looking for a job, a merger is then something you should embrace, considering a merger yields a more optimistic future. However, if you're already working for the airline that is undergoing a merge, you usually have a lot more to worry about. Though, it usually depends on which side of the fence you're on, too. If you're employed by the company being acquired, you're in your right to be nervous. However, if you're employed by the company doing the acquiring, your job is safe. It's who has the money and clearly, if you're working for an airline that can't effectively make a profit, being bought out by an airline that can, of course there are going to be changes. Often times, those changes involve cutting jobs, cutting pay, and eliminating dead weight; all unfortunate issues that may befall upon you and subsequently cause you to lose your job. That's the industry though and it's been that way for decades.