Swelbar: Stuffing The Turkey

The drum beat is growing louder now that we may soon see the outcome of all those merger talks between American Airlines and US Airways


The drum beat is growing louder now that we may soon see the outcome of all those merger talks between American Airlines and US Airways. As Ray Neidl of the Maxim Group wrote in a November 20 research note this morning: “We believe a merger would definitely benefit the industry since it would promote further consolidation and enhanced pricing power for the carriers in general. However, we also believe that an AMR/US Airways merger, if it were to happen, would not be an easy endeavor to manage (as was Delta/Northwest merger, even with AMR union support). We believe that the benefits in market mass would not be as great as either the Delta/Northwest or UAL/Continental merger are proving to be.”

US Airways and others tout the benefits of synergy – relying mostly on the experience of recent mergers that may not apply in this case. Proponents are less likely, however, to spotlight dis-synergies. The fundamental question: What are the net synergies?

This question is particularly relevant in the case of a potential merger that creates an unstable labor situation. I tried to address this before in the most-read blog in swelblog history: US Airways and American and the Elephants in the Room.

The labor issues we’ve seen recently at several airlines offer a big window into the risks of brand and service degradation. But let’s focus just on pilots. What’s most important to a pilot’s career, flying opportunities and pay? Seniority. What is for pilots at most risk in a merger? Seniority.

We already know what can happen when pilots are unhappy . . . they uniquely have the means to affect the operation by something as minor as a slow taxi to the gate. Look no further than American’s on-time performance in September and October. .

Difficulty in merging seniority lists is likely the rule, not the exception. Even MaCaskill-Bond, legislation designed to make the process fair for each side, does nothing to ensure a smooth integration.

So imagine for a moment the seniority integration monster a merger between American and US Airways could create because there are not two but FOUR pilot groups involved: American’s pilots represented by the APA, US Airways pilots and former America West pilots both represented USAPA but working under separate contracts, and former TWA pilots who have never been very happy about their treatment when American acquired TWA’s assets in 2001.

By the time you involve management in that equation, it could be a 5-way or 6-way conversation.. We have seen enough cases of difficult outcomes with three parties at the table, let alone more.

Enter arbitration.

At US Airways, an arbitrated seniority award under ALPA merger policy resulted in the decertification of the union by a majority of US Airways pilots because some more junior America West pilots were placed ahead of them on the combined list. This happened in part because America West pilots had more certain career expectations than the original US Airways’ pilots whose carrier was in bankruptcy for a second time with little hope of surviving as a stand-alone carrier.

If an AA-US merger were to occur before American exits bankruptcy, the two pilot groups at US might successfully argue that AA is a failed carrier and that, as pilots for a successful carrier they deserve super-seniority consideration. This scenario, known in the industry as the Failed Carrier Doctrine, has long played a role in combining seniority lists in mergers involving a profitable carrier and a bankrupt carrier

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