Six months ago, in the Q3 earnings call for American Airlines, CEO Tom Horton responded to a question by TheStreet.com's Tom Reed about the possibility of "further consolidation" in the industry:
"Does that include you?" asked Reed.
"Yeah, it could," Horton replied.
Horton has more recently also said "For years I've said that I think consolidation has been — can be healthy and constructive for the U.S. airline industry." Yet he couched this comment within the context of the current bankruptcy indicating that a merger during bankruptcy is too hard.
Well his comments may come to a test now that US Airways is considering a takeover bid. While I think the likelihood of a US/AA merger is slim, it's certainly plausible. With the American Airlines unions supporting the US Airways bid there is a possibility for US Airways to kill two birds with one stone -- grow to a competitive size while finally putting their US/America West merger contract woes behind them.
While the unions can't force a merger, they do hold three of the nine seats of the unsecured credits board and they could ask the judge to review Americans exclusive right to reorganization thereby opening the possibility of a merger.
Additionally, unlike Gerald Grinstein, CEO of then bankrupt Delta Airlines in 2006, who immediately and repeatedly spoke out against any type of US takeover, Horton has been much more non-committal. In standard CEO corporate-speak, Horton sent a letter to employees today stating that things will proceed as normal through bankruptcy court but the letter lacked any punch that, in my opinion, leaves room for consolidation.
Thomas W. Horton
Chairman and Chief Executive Officer
April 23, 2012
Dear American Team:
As you know, US Airways recently revealed its non-binding arrangements with our unions, which is part of an attempt to force a merger with American. While these tactics are not surprising, I'd like to explain what this means – and doesn't mean – for all of us.
First and foremost, nothing changes as a result of these announcements and we will proceed on our path toward a successful restructuring of American. Today we began the section 1113 process and US Airways' actions are in no way binding on our company or our unions.
I think some perspective on these announcements is useful. It's easy to understand US Airways' sense of urgency to find a way to address the challenges it has faced for a long time. That story is well known.
However, I recognize all of our people have lots of questions about this. First and foremost, everyone should understand that what's best for our company, our people and our financial stakeholders will be determined by the facts in a disciplined manner and process. And this includes whether American will choose to pursue any combination down the road. This is the charge of the board of directors and the leadership team to be done in close collaboration with the creditors committee.
We know our restructuring, like others before, is hard work and the road ahead is challenging. It would be natural to look for an easy way out. But there is no easy path back to renewal and growth and industry leadership. It will require difficult choices. We must be mindful of other parties who don't have our best interests at heart and who are working their own agendas at our expense. There is real substance in our plan to build American with our industry-leading aircraft orders for 460 new narrowbody jets, up to 100 787s and 16 777s. These are planes which should benefit the careers of American pilots and flight attendants. And with this fleet plan, we will grow our network, which is already strong in the right cities and bolstered by the best partners around the world. We have a strong plan that creates lasting benefits for our employees, our customers, our financial stakeholders and our airline.
I want you to know these developments in no way alter our course. We are making significant progress, and the Court has granted us the exclusive right to pursue our plan of reorganization at least through the end of September and this may be extended further. We will continue to follow the prescribed court supervised restructuring process. Our immediate next step is to pursue necessary modifications to our collective bargaining agreements, through the section 1113 process, which began today. This is another difficult step, but it remains our hope and our goal to reach consensual agreements with our unions consistent with our future as a successful, profitable and growing company. This is in the long term best interests of our people and our financial stakeholders.
In spite of all the distractions, the people of American are standing tall and doing a great job for our customers. American is operating better than it has in many years, and our recent revenue performance, driven by our network and alliance strategy, has been very strong.
Everywhere I travel, I hear loud and clear the conviction that it is time to return our company to the top. Our people are the best in the industry and, now, more than ever, we all need to remember that. I am focused on moving us through this process as quickly as possible so we can build a new American Airlines together.
Thank you for all you do every day to make American the leader we all know it can and will be.
Nevertheless, the merger rumors continue to swirl and I have to think that AA and US are having high-level talks right now, no matter what they say. I do not want a merger, nor do I think one would be beneficial to employees of either airline or consumers, but at least that would be it--speculation about future mergers would be over as the U.S. airline industry would have cut the number of legacies in half over the last decade.