01.23.2008 « Pondering A Northwest – Delta Combination »
A Thought for Today
How does the Northwest/TPG bid for Midwest factor into the various consolidation scenario considerations being explored?
On January 7, 2008, Liz Fedor, airline reporter for the Minneapolis Star Tribune, wrote a story suggesting that the Department of Justice would complete its review of the proposed transaction by January 31, 2008. In the article, Northwest suggests that the transaction is being reviewed by the DOJ much like a merger would be reviewed.
If approved, a Delta – Northwest combination just might receive more intense scrutiny than originally thought. Geographic concentration? I am not going to get too excited given the confluence of hub competition within this region. Or is this yet another reason why a decision regarding Comair – read Cincinnati – is being postponed?
Maybe an AirTran acquisition of Midwest might resurface? In today’s TheStreet.com, Ted Reed reports that PAR Capital has made a passive investment in AirTran. An AirTran/Midwest combination could be the low cost competition lacking in Minneapolis and Milwaukee? Just a thought and yet another example of the myriad of complex network issues that are sure to be scrutinized and considered as this consolidation round gets kicked off.
Reader Comments (4)
Airline mergers: Everyone talks about them but no one seems to want to do anything about it. Every airline wants to be the acquiring airline; none of them want to be acquired. They all want to retain their name, their HQ, and so on. The result? Stalemates across the landscape.
You know Chris, I am in absolute agreement with everything you say. Whereas this post you commented on is rather whimsical in my view, I hope you read the post immediately preceeding this one.
I do think this time is different -- or at least I hope so because the existing structure works for NO stakeholder. I have spent a considerable part of my career as an advocate. I am so happy to have had 4+ years to step back and look and recognize that many of the earlier fights I assisted on were not in the best interests of my client.
Every attempt that has failed has been because parochial interests have somehow outweighed the realities of the business. True, timing is everything in most circumstances, but this current structure works for no one.
I am almost embarassed to have been quoted that Chicago would not take it lightly if United were to be acquired - and leave Chicago - but in a long interview - what plays in Peoria played out. A $14 billion fuel headwind since 2002 - when the restructuring of costs in the industry began - makes for a new day.
Whereas parochial interests are often layed at the feet of labor and the regulators, managements across the industry will have to lay down their respective swords in some instances too. Let's sit tight and take some heart that there are new faces and minds that recognize that today's parochialism loses the battle against globalization.
Certainly more to come.
Hey again Bill, it certainly does look like the merger mania is for real this time and picking up speed. Lets hope the government isnt a fly in the ointment for the process. Where do you feel AMR fits in this whole merger scene? AA is notably absent from all merger speculation, but they continue to reduce capacity, spin off Eagle, and shrink their market share. Is the spin off of Eagle a way to get into the merger market by reducing dead weight?
flyby
Indeed AA is conspicuously absent from current speculation. But also absent is US Airways for all intents and purposes. In my mind the common denominator in their absence: each respective pilot work force. In each case, the labor albatross will hinder their ability to play in this round.
As for AA, I am impressed with how they go about managing their business and repairing their balance sheet that in my mind is the impetus for considering selling off Eagle. Rates are not competitive at Eagle and if I am AA I do not want to be in the business of owning a regional sub that will soon demand reinvestment.
So AA shedding itself of a subsidiary that will compete for holding company capital seems smart to me. The timing may seem odd, but unless the regional space is your core business it is not a space I would want to be in today.
Given AA's structural cost disadvantage relative to its peers, I am not sure that they can do much more than shrink to a level that they believe can produce a profitable core. But to count them out of the game today would seem to be a bit premature. Somehow BA plays in the discussion as well.
As for the government - local, state and federal - like you I hope that they step back and appreciate that it is best preserve as much as we can and in the process strive for better competitive footing against global forces. But.....