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With Mediator, American’s Merger Chances Improve

With Mediator, American’s Merger Chances Improve

The Associated Press is reporting that American, US Airways, and the Department of Justice have agreed to conduct negotiations under the auspices of a mediator recommended by the judge overseeing the DOJ’s lawsuit to halt the two airlines’ merger.

No other details were available, but the very presence of an mediator in the mix suggests that negotiations will be intensive. And given that an mediator’s expertise is in conflict resolution, it stands to reason that those negotiations now have a better chance of resulting in a compromise acceptable to both sides.

In short, although it’s no guarantee, this new development is a definite win for those who support a merger between American and US Airways.

Antitrust Trial Timeline

If no agreement between the DOJ and the airlines is reached in the interim, the trial to adjudicate the DOJ’s suit to block the merger is set to begin on November 25, and is expected to last for around 10 days. Other related events scheduled to take place in the run up to the trial’s start:

October 30 – Final deadline for requests for admissions to be served
November 8 – Defendants’ expert disclosures
November 15 – Supplemental and/or rebuttal expert reports
November 20 – Close of expert discovery
November 25 – Trial begins

Merger Cheat Sheet

  • The new company would retain the “American Airlines” name and be based at American’s Ft. Worth headquarters.
  • US Airways chief Doug Parker will be the new CEO. American chief Tom Horton will be named chairman of the new board and remain in that position until the spring of 2014 when the company’s first annual shareholder meeting will be held. When Horton departs the board, Parker will assume his position as chairman.
  • American’s creditors would own around 72 percent of the new company; US Airways shareholders would get the rest.
  • Based on 2012 results, the new company would have generated $38.7 billion in revenue.
  • The merger is expected to generate around $1 billion in combined extra revenue and cost savings for the new company.
  • The new company will be valued at around $11 billion.
  • Combining the third- and fifth-largest U.S. carriers will create the world’s largest airline, in terms of passenger traffic.
  • Prior to any post-merger rationalization, the two airlines will have around 120,000 employees, 950 planes, 6,500 daily flights, and eight major hubs (American: Dallas, Miami, Chicago, Los Angeles, New York; US Airways: Phoenix, Philadelphia, Charlotte). Although the carriers promise to maintain all current hubs, Phoenix and Philadelphia are likely to be downsized in the post-merger “rationalization.”
  • The new American will be a member of the oneworld alliance, not the Star Alliance.
  • The merger is subject to review and approval by U.S. regulators. That wasn’t expected to be a problem since there is relatively little overlap between the two airlines’ networks.
  • The actual merger won’t happen overnight. United and Delta required five and seven months respectively to secure the necessary approvals for their mergers.
  • It was 22 months after their merger closed before United and Continental finally merged their frequent flyer programs. Expect a similar post-close interval before American and US Airways consolidate their programs.
  • Comparisons between American and US Airways’ current mileage programs are probably moot since there’s a high likelihood that an entirely new revenue-based program (like Southwest’s) will be introduced to replace both programs.
  • After the merger, 83% of U.S. domestic air traffic will be in the hands of just four airlines (American 26%, United 19.3%, Delta 19.2%, Southwest 17.3%).

Reader Reality Check

What’s your bet: Will the DOJ succeed in blocking the merger, or will it succeed, with some concessions on the airlines’ part?

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  • Oldsmoboi

    “The merger is subject to review and approval by U.S. regulators. That wasn’t expected to be a problem since there is relatively little overlap between the two airlines’ networks.”

    Um… false? This is only if you’re counting direct flights or what?

  • Sonofzeus

    Arbitration != Mediation

  • Danny

    Yeah, this doesn’t ring true to me. I’ve read other analyses that state that there would be a lot of overlap. So much so that the new American would basically dominate (at monopoly levels) a significant number of cities.

  • Lemongrab

    It would help if this blog would do some research first. It’s a mediator, not an arbitrator, which is different.

    The judge ordered the parties to get a mediator in the 30 Aug order. Such actions are commonplace, regardless of whether the parties are, or have ever been, actually negotiating. And even if there is no real chance of a settlement, judges may offer or order it, just to allow for one more shot at non-courtroom resolutions.

    A mediator’s presence is often pro-forma and there isn’t any guarantee the parties will ultimately make any real use of him/her. It would be unwise to read anything, either way, into it.

  • Jim

    This article is clearly written by someone who has no clue about how antitrust law works. Judges routinely order parties into mediation. It does not “improve” the chances of the merger, especially when DOJ has said they do not wish to settle. The author should show his articles to an attorney before posting them.

  • MarkWorth

    While I am not an antitrust expert, I did recently discuss the AA-US case with a friend of mine who is and who lives in the States. The headline is overly optimistic as the presence of a mediator is almost pro forma in such cases. It doesn’t mean that the parties have negotiated or will negotiate. It simply means that the parties are complying with the judge’s “suggestion” that mediation be employed.

    From what I have read this past week, it seems LESS likely that the parties will merger.

    One good example of this is:
    Delta’s Q3 Profits May Not Bode Well for American-US Merger

  • howie ray

    Par for the course in regards to the mediator this is really poor writing.

  • Thomas J. Lipton

    One is torn between rage at the impotence of the DOJ to quash this illegal merger, and eagerness to see the two-headed monster implode as Obamacare is doing.