Industry Mergers Update

Update to "Industry Mergers" Topic -- Posted February 3rd, 2012.

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).

*Update on Delta & Northwest Merger since last post on February 3rd, 2012.

The Delta/Northwest merger is one that I discussed quite in depth in my original post on February 3rd, 2012. Since that time, nothing particularly major has occurred. However, with such a larger airline that Delta is, there are, of course -- a few things that have happened since that time. While the merger is still underway, fleet integration (and updating the fleet as a whole, particularly the interiors of the Northwest-aircraft) are still underway. On February 15th, Delta announced that they'll be renovating the entire 747-400 fleet (all prior Northwest-aircraft) and configuring the interiors towards Delta's standardized international-interior configuration. 48 full-flat business elite seats will be installed, featuring an array of amenities, such as LED lamps, personal monitors with over 1000 entertainment options, and other typical 'Business Elite' amenities from Delta. The product will be on par with Delta's 777 fleet. Economy will get an upgrade also, with transitioning towards slim line seats, consistent with the rest of Delta's interior-based products. While this may not sound like significant news, it is when you consider that much of the flights revenue comes from its business class customers, many of which whom are highly particular when it comes to the amenities and seating configuration in business and first class. Integration throughout the entire 747 fleet should be completed by October 2012 -- Delta 747 Seat Updates.

Also in the news, Delta recently expanded their codeshare agreements with China Eastern and China Southern to cover routes out of Seattle and Detroit for flights to Beijing. This means customers travelling on Delta aircraft from Detroit and Seattle to inner-China cities could fly to Beijing and easily transition to a China Eastern or China Southern flight. Delta already has codeshare agreements in place with China Southern and China Eastern with respect to flights from New York/Los Angeles to Shanghai, and Los Angeles to Guangzhou -- this recently news is simply an expansion of that codeshare agreement. The agreement allows significantly easier access to (at present) 52 cities in China, serviced amongst China Southern & China Eastern -- Delta Expands Partnership with China Southern & China Eastern.

Lastly, Delta recently expanded operations at New-York LaGuardia’s airport, its largest expansion in more than 40 years, featuring the addition of 100 new flights and 26 new destinations between spring and summer 2012. Once completed, Delta will feature the most daily departures out of LaGuardia than any other carrier, conducting 260 daily flights to over 60 cities. All said and done, the expansion will yield 4 million additional seats to the New York market. Moreover, Delta will also renovate two of their terminals at LaGuardia, in addition to connecting them to each other (not presently offered). The project will bring 700 new jobs to the airport -- Delta Launches Historic Service from LaGuardia.

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).

*Update on Southwest & AirTran Merger since last post on February 3rd, 2012.

A few major things have occurred since February 3rd, 2012, with respect to the merger between AirTran and Southwest. One, on March 1st, 2012, the FAA approved a single operating certificate for both carriers -- Southwest & AirTran Single Operating Certificate. In essence, both airlines are now viewed as one, despite the fact that the merger is far from complete. With the operating certificate taken care of, Southwest can now begin the rebranding process -- that is, painting AirTran aircraft into Southwest colors, reconfiguring all AirTran interiors, rebranding at all airports, merging ticketing, reservation systems, and a horde of other important merger-related functions. All of these issues are completed slowly (and sometimes tediously) over a span of several years, depending on the two airlines being merged. In this case, it'll be about around the same time frame (speculative, of course), of probably (at least) 2 years. Interesting fact is that it takes about 45 days for an AirTran aircraft to be reconfigured into the Southwest configuration. This includes repainting the exterior, replacing the interior, galley and lavatory repositioning and appropriate cockpit adjustments (nav updates, Southwest configuration, etc.). The first AirTran aircraft arrived in Seattle the first week of March to be configured in a Southwest configuration; with a 45-day span, we're only about a week or two away from seeing the first fully reconfigured AirTran > Southwest aircraft -- AirTran & Southwest Single Operating Certificate.

In other news, Southwest recently announced that they'll be forced to switch several proposed Southwest routes back to AirTran. The announcement is only with respect to flights out of Atlanta. The original plan was for Southwest to take over several Atlanta-based AirTran routes in many markets this year, markets such as Atlanta to Los Angeles, Atlanta to Chicago-Midway, Atlanta to Las Vegas, and a few other select routes. The plan was to shift these routes from AirTran to entirely Southwest-based crews and aircraft. However, Southwest recently announced that these flights will retain flights via AirTran, due to several issues. One, it's taking longer than expected to reconfigure the AirTran aircraft as necessary, and the transition won't occur at a fast enough pace necessary to fulfill the proposed route changes. Two, Southwest still doesn't have an interline agreement with AirTran. In other words, they're having computer problems (IT problems), because they haven't been able to merge the ticketing systems together yet, which means they can't tag checked baggage between both carriers. So, a customer wanting to fly Atlanta-Chicago Midway-Las Vegas, and the Atlanta-Chicago route is on AirTran while the Chicago-Vegas route is on Southwest, the customers bag's would have to be rechecked in Chicago. Southwest lacks the capability to tag the baggage in Atlanta all the way through to Vegas. Clearly, this would be very detrimental to Southwest (and AirTran's) customers. Because of all of these nuances, Southwest decided it'd be best to leave AirTran aircraft on their present (original) routes, and as they are -- until these issues can be fixed -- Southwest Shifting Atlanta Service.

In an interesting twist, there's been rumors floating around on the internet that Southwest plans to rid themselves of the entire 88 AirTran Boeing 717's, and instead -- send them to Delta Airlines, whom are (speculatively) the interested acquirer. Supposedly, the 717's are to be sold off at such a cheap price that Delta is considering acquiring them, and after all -- they're the perfect replacement for the DC-9's, nearly all of which have been retired (there are many DC-9-50's that are still flying, but retirement should be completed this year). The 717 is nearly identical to the DC-9-30 in terms of passenger capacity, and, in many ways -- is a modern derivative of the 717. Southwest's CEO Gary Kelley refused to comment on any 717 deal, but did comment on some major points with respect to the 717 development, potential furloughs, and the Southwest fleet overall. Nonetheless, this news is something that's spread on the internet over the last week and a half, and has been heavily discussed in aviation forums. Check out more information by clicking here

There is some credibility to the rumor, particularly the fact that on March 29th, Delta, Hawaiian (another operator of Boeing 717's), Air China and Southwest Airlines all met in Phoenix to discuss 'Fleet Strategy' -- click here to view the article.

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?

*Update on American Airlines since last post on February 3rd, 2012.

Just over the last few days, US Airways has pushed significantly for a merger between themselves and American Airlines. US Airways is strongly pushing towards a merger particularly because American has recently asked a judge to abandon labor contracts in an effort to cut costs. US Airways ramped up their interest (going so far as to provide financial estimates of the merged airline to American's creditors) considering these issues regarding labor contracts. Internal negotiations at American's labor unions (in an effort to cut costs) have stalled and/or been rejected. American's now seeking court approval to void its union contracts, which would help save the airline over $1.25 Billion -- American Seeks Approval to Void Contracts.  The cost reductions include 13000 job cuts and various other concessional-based cuts, and are part of their recovery efforts under the restructuring agreement with respect to their recently filed Chapter 11 bankruptcy. Also, American has made clear that they want to stay an independent airline, and want to exit bankruptcy alone (without a merger) -- US Airways Pushes Merger.Moreover, American was recently granted an extension on coming up with a full-on reorganization plan, giving them another 6 months to do so. American's CEO has specifically stated that they have no interest in any mergers nor will consider any until the airline emerges on its own from bankruptcy proceedings. This was mentioned and discussed in depth via the wall street journal article above.

Other than that, not much has happened with respect to American. They're still losing money, having lost $619 million in the month of February alone. This brings the total loss to a staggering $1.76 billion since the time the company filed for bankruptcy last November. Their largest expense? No surprise, fuel. With their aging fleet of primarily MD-80 based aircraft, all of which are highly inefficient, fuel and fuel expenses remains American's largest problem. Additionally, overall revenue is down 10.8% from this time last year, and passengers flew 8.2% fewer miles. You can read more about these figures by clicking here.