American Airlines’ CEO Thomas Horton has apparently had a change of heart regarding a possible merger with US Airways or another carrier. In a widely reported story on July 10, Horton said it was time to look for a merger partner seven months after American began operating under Chapter 11 bankruptcy protection. Until this week American has insisted that its best course of action was to emerge from bankruptcy protection as a stronger carrier.
“It now makes sense to carefully evaluate a range of strategic options, including potential mergers,” Horton said in a letter to American employees. According to Horton, options include a merger that “could make the new American even stronger.”
Some airline analysts have speculated that Horton and the rest of American’s executive team would reap significant financial rewards if they successfully navigated the airline through bankruptcy, so they had delayed considering merger proposals. Others analysts have argued that American’s top executives simply wanted to keep their jobs, even though they’ve largely lost the support of the airline’s unions. US Airways, on the other hand, has already agreed with three of American’s unions on a possible labor agreement if US Airways buys American.
But now Horton is saying American is well on the way to a successful restructuring, including improvements in revenue (although the latest figures show only marginal gains) and what he calls progress on cost-cutting labor deals. On the other hand, apparently Horton wants to solicit bids from more than just US Airways so he’s trying to attract interest from other merger partners as well.
A US Airways spokesman was quick to welcome American’s apparent change of heart, at least to consider merger proposals. On the other hand, despite reaching an agreement with American’s unions, US Airways has not seemed to be in any rush to make a formal merger proposal directly to American.
Most analysts believe a merger between American and US Airways is the only way American can survive. They say there are no other merger partners in the market who could pass merger with government regulators. Delta and United are simply too big already, so any bids by those airlines for American would lead to major antitrust concerns. Other carriers like Southwest, JetBlue and Alaska have vastly different corporate culture from American and might prove to be bad fits.
One way or another, it’s likely that US Airways and American are finally on the road to a merger. One thing’s for certain: Next week all eyes will be on US Airways CEO Doug Parker when he speaks to journalists at the National Press Club in Washington, D.C. Whether he will announce any firm plans for a merger proposal at this time remains to be seen.