Merger Mania
April 3rd, 2008
As Delta Airlines closes in on a possible merger with Northwest Airlines, two big questions emerge for the US airline industry.
Who else is going to try and merge and what about fleet renewals?
At the start of the year, an initial report placing Delta Airlines at the forefront of merger activity in the USA by the Financial Times has also led to other US carriers talking amongst themselves.
Image courtesy of Tim Dauber
Consolidation, some argue, is well overdue and much needed in a sector beset by stringent security and ageing fleets. Talks are understood to have taken place between United and Continental, with the latter also courting American Airlines too.
Missing from the party action is US Airways, itself still struggling to emerge from its merger with America West.
Unsurprisingly, US Airways represents a stagnant carrier with little or no interest in becoming an industry heavyweight, and its likely that the carrier will be taken over rather than be the one doing any purchasing.
Southwest Airlines has also been rumoured to be in talks with rival AirTran. Whether something comes to fruition is debatable given Southwest’s pre-eminence as a strong, independent low cost airline.
Image courtesy of Rick Schlamp
Southwest, Continental and Delta Airlines have all made moves to replenish and replace older airplanes. During the 2005-2007 order boom, no US airline made any big purchases like rival European or Middle Eastern airlines - ageing narrowbody airplanes require something newer than the 737 and A320 families, but isn’t yet available.
With both Airbus and Boeing having hefty backlogs across their model line ups, just how long can US carriers afford to sit on the sidelines?
Delta will no doubt benefit from grabbing Northwest’s 787’s on order, and Continental is already a customer - United and American have much to do to replace and expand their aging fleets - at least in one way, US Airways has been somewhat proactive and snared a variety of Airbus airplanes, including the A350XWB.
Pilot talks have been ongoing between Delta and Northwest - at the heart of the negotiations is the unresolved issue of pilot seniority, without agreement will likely mean no merger at all. Other carriers will certainly be keeping a keen eye and ear to avoid loggerheads in their own merger talks. Delta has already made clear that it will not press ahead until this and other key labour issues are resolved.
In an age of high fuel costs, indefinite courting with no prospect of a long term future is construed as a waste of time, money and resources - all of which can be better utilised to lower ones cost base.
While the path to the alter may seem straightforward, the path after the marriage ceremony is certainly not as clear cut.
Sphere: Related ContentEntry Filed under: Aeroplane, Aerospace, Air Transport, Air Travel, Airbus, Airbus A350, Airlines, Airplane, Airplane Order, Airplanes, Airport, Airports, American Airlines, Boeing, Boeing 787, Continental Airlines, Delta Airlines, Dreamliner, Northwest Airlines, Southwest Airlines, US Airways, United Airlines
6 Comments Add your own
1. Aurora | April 3rd, 2008 at 10:14 am
The “merger mania” is driven by the debt holders who want to dump the debt and get out of town. Without labor signing up for this exercise in financial engineering, it ain’t going to happen.
2. Chris Wallace | April 3rd, 2008 at 2:20 pm
In addition to the debt holders, it is driven by the investment firms who will make a mint from the process.
That being said, the US airline industry does not look like it can sustain six large international (AA, UA, CO, DL, NW, US) airlines, one large domestic airline (WN), plus another half-dozen or more smaller players (AS, B6, F9, etc.). Ever since Deregulation, the industry has staggered from boom to bust with the booms getting shorter and the busts getting longer.
So some type of merging needs to happen and if the merged entity loses some of it’s luster in the near-term (ala US/AW), over the long term more stable finances should result in improvements, especially as the foreign carriers encroach more and more in the US domestic market.
Hopefully DL/NW can make it work, since this would spur the others to merge. UA will merge with anyone who will have them, so if DL/NW goes through, I expect UA and CO to announce a merger within weeks after.
3. Jacobin777 | April 3rd, 2008 at 3:51 pm
@ Chris Wallace:”UA will merge with anyone who will have them”
While I agree with a number of your comments, I have to disagree here. UA isn’t willing to merge with “anyone”. Though Tilton has spoken mergers are necessary, he did state it would have to be beneficial to UA. Also, UA has had good performance numbers lately and I think they are a carrier capable of “going at it alone”. They have a very good route structure, FF-base as well as their revenue sharing with LH. Finally, they have been expanding (albeit slowly).
Finally, if DL/NW to merge, I second the notion CO/UA will merge with the combined entity being run by CO management.
4. johnny stick | April 3rd, 2008 at 5:24 pm
The mergers will come because of a fundamental need to increase revenues while decreasing costs. What this means to all of us is an increase in ticket prices. Hopefully this also means a reduction in the ludicrous scheduling. I also hope that this ‘house cleaning’ reduces some of the stress on the overloaded hubs like Atlanta, Chicago and New York. Maybe the airlines will discover people are willing to pay more if the overall experience is better?
5. jimc | April 4th, 2008 at 12:43 am
NWA-DAL Merger…I don’t think “merger” is quite the right term, nor do I thnk “purchase” is relavent. A “marriage” might be a better term, given there will be some give and take, and a lot of yelling after the honeymoon is over, especially from pilots if the seniority issue is not handled up front.
6. johnny stick | April 4th, 2008 at 6:32 pm
jimc,
Could you please expound more on your statement…”especially from pilots if the seniority issue is not handled up front…”? I am not a pilot for a major and would like to know more about the dilemma these ‘marriages’ create.
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