American Airline and Us Airway Merger

Analytic Paper

Brian Shim

Airline mergers and negotiations

In recent years, the U.S. airline industry has come to consolidations where large airlines had gradually merged and the last two also have decided to merger; The American Airlines and US Airways. This merger appears to have been driven by trade unions and the senior management of US Airways. American Airlines’ main union was in favor of the merger because it promised less job losses than the alternative solo strategy for the company. In the United States, trade unions in Airline industry typically have a strong control over innovations and changes. However, from a strategic management perspective, the American Airlines solo strategy made more sense.  It is difficult to see what value US Airways brings to American beyond the ability to consolidate the route network, combine purchasing, maintenance, and repairs. Despite the limited justifications, American Airlines and US Airways announced the merger in December 2013.

There are largely five parties involved in this deal; managements, investors (creditors and equity holders), unions, government (Department of Justice) and customers. U.S. Airway management had wanted the merger from the beginning since the company was desperately in need of scaling up because it was too risky to operate as a mid-size company in such a competitive industry with low profitability. However, American Airline had a different position from US Airways. The CEO of American Airlines, Tom Horton, believed that American Airlines could come out of bankruptcy as a standalone company. In fact, American Airlines might have been able to get out of the bankruptcy protection if business continued to improve and eventually buy out the US airways to scale up, but the pressure from investors was to pay down debt and build up equity rather than growing market share. In addition, American Airlines' main union was in favor of the merger.

With union support as leverage, US Airways management was able to convince American Airlines’ creditors that a merger was the only way to compete with Delta and United.  While the unions of US Airway did not publicly express its preference on merger situation, many employees of American Airlines were tired of Tom Horton and they wanted a new leadership to take control of the company. This is why the major employee unions in the company had been in support of a merger where Doug Parker, CEO of US Airway would control the merged company.

Airlines also needed to come to an agreement with Department of Justice. While the government argues that the merger will reduce the competition and hurt the consumers by giving the new airline too much power, both airlines argued that they needed to have the merger approved in order for them to be able to compete with much larger airlines such as United Airlines and Delta Airlines. 

The Department of Justice argued that American Airlines and US Airways have about 1,000 routes in common, and there would be no competition for these routes as the companies would work towards eliminating their redundancies after the merger.