Everyone now knows of talk of a merger between US Airways and American Airlines after the former last week announced deals with three of the latter's biggest worker groups. US Airways executives today in prepared remarks during a quarterly earnings conference call explained their rationale.
"We have concluded that there is an opportunity to do something that we think is in best interest of both companies' owners, or creditors in the case of AMR, both companies' employees, our customers and the communities we serve," CEO Doug Parker began. "AMR, however, has made clear that they would like to focus only on their standalone emergence from bankruptcy. While we would prefer to be in concert with the AMR management team and its board, and hope to be doing so before too long, we understand where their focus is."
Therefore, US Airways went first to AMR employees and struck deals with three unions. "So now, with those 50,000 employees by our side, we are focused on the full unsecured creditors committee," Parker said. "We are eager to demonstrate to the creditors of AMR that our plan would result in higher returns than the AMR strategy would. We are highly confident that the value created by our two companies is very large relative to the value of a standalone AMR."
Should US Airways find support there, it then would "look forward to a cooperative and consensual process with AMR's board and management team."
Parker acknowledged that one question "that appears to be important out there is, 'How can you guys have labor so excited and still have value for investors?' "
On cue, US Airways president Scott Kirby said, "The answer to that is pretty straightforward. There is a tremendous amount of value by merging US Airways and AMR, and we can and should use a portion of that to give employees more than AMR can on a standalone basis."
In addition to clear revenue synergies from a broader network, "we would also generate significant cost savings__even though we wouldn't shrink the combined airline__by reducing or eliminating redundant facility space and management headcount, by combining IT systems and by much improved purchasing power," Kirby continued.
Such revenue gains and cost cuts, Kirby claimed, "allow us to set the pay for US Airways and AMR employees comparable to the pay at United and Delta. The result is better contracts than American can pay independently and much better than what they are attempting to impose on their employees" through bankruptcy proceedings.
"The impact to labor and jobs is far less draconian because some of the synergies have been appropriately shared with labor through better pay and fewer job cuts." Kirby added. "We agreed with all three unions that the merged American needs to have contracts that have neither a competitive advantage nor a disadvantage to Delta and United. Since the new American will have revenue-generating capabilities like United and Delta, it should also have labor costs like United and Delta."