US Air To Gobble Up AA?

It has been rumored for sometime that AMR,  the parent of American Airlines has been in the eye of the managers at US Airways.   In order for this deal to work, the management at USAir will need help from the major unions at American.  If the three big unions at AA didn’t agree and fought with AA management to prevent the takeover it would be a deal breaker.  Pilots, Mechanics and Flight Attendants are the three unions that can be game changers in any merge, takeover or bankruptcy in the airline business.  The mechanics effectively ended Eastern Airlines after their bankruptcy deal.

Rumors have been circulating for a while about AMR hiding assets and profits overseas.  One of the foreign stocks owned by AA recently disappeared from listings.  A move thought to prevent the publication of information about AMR’s true financial situation.

Unions are very sensitive to the tactic used at Eastern, Continental and United to generate sudden profits after bankruptcy and eight figure bonuses to senior management and board members.  MSNBC reported that the director of the PBGC (Pension Benefit Guaranty Corporation)  told the senior managers at AMR and the courts that the PBGC will fight any attempt to turn over the pension liability of AMR to the PBGC and further that the PBGC would use it’s reach as a US Government entity to seize assets overseas.  It is thought this is the reason that AMR came back to the unions and offered a “freeze”.

It is well published that AMR has retained some very expensive bankruptcy attorneys.  Rumors of Rothchilds and Bain & Company (Mitt Romney’s former home) using offshore asset moves and profit holding to bleed AMR of cash in the US are running rampant.  Without the filings of the foreign stocks it gets tougher to prove for the three big labor unions at American Airlines.  That must be why those law firms can charge $14 Million a month.

US Airways as a suitor has been a rumor for a while too, but one has to wonder why?  They still can’t get the US Air and America West pilots to play nice together, so how do they expect American pilots want to join into that hornets nest.  Well it appears the answer is US Airways management doesn’t care.  If they can run an airline with two pilots groups, why not three.

Some quick research might shed some light on why US Air is looking so closely at AA.  First if AMR was hiding all that money overseas, wouldn’t you want it?  This leads to a whole different discussion of shareholder lawsuits and fiduciary liability I’ll save for another day. Personally if I had friends with a billion cash, I would want to work a deal on AMR.

Second, AMR effectively bought out all of the production remaining for the next five years of both Airbus and Boeing with the highly publicized “Biggest Aircraft Order Ever”.  US Airways would have control over all of those aircraft deliveries.  What they don’t need, they could sell at a profit.  Finally the icing on the cake.  An analysis of the age of US Airways pilots indicates that US Airways is aboutt 24 months from the beginning of an internal meltdown due to the lack of pilots and they know it.

Four years ago the airline industry saw a major problem.  Air Traffic Controllers and Pilots were about to hit their mandatory retirement age in big numbers.  The government can use the military to train Air Traffic Controllers and get replacements in about 24 months.  In fact they have hired people with zero experience right off the street this year.  You can’t do that with pilots.  To become an airline ready pilot under the current rules, you are looking at something close to the cost of an off shore medical school.  Who wants to spend that kind of money to start out at $24,000 a year?  Also pilots take time to build.  The airlines say a good Captain takes four to five years after starting at the airline to be at the level they really want.

Congress gave the airlines a five year reprieve to fix the problem by extending the retirement age from 60 to 65 for airline pilots.  Next September, that five years is over and the retirement wave begins.  US Airways has one of the highest average ages for pilots and will see one of the largest exits of pilots over the next 7 years according to data from the Airline Pilots Association.

US Air needs pilots and American has them.  So now the question is will American Pilots want to work for US Air?  Given what AMR management is offering the pilots at American it won’t take much to convince them that US Air is offering a better deal.  Rumors are flying today that the deal is accepted by Americans Pilots and Mechanics.  Last weeks vocal protests which were “leaked” by American Airlines VP Flight John Hale stating “There is no benefit” of going with a US Air deal must make one pause to say “Me thinks Mr. Hale doth protest too much.”  Is Mr. Hale just trying to keep his high paying management job with AMR?

Today, rumors are flying of secret meetings of the Pilots Union and Mechanics Union from American and US Air, and  letters of agreement being signed.  Maybe Mr. Hale knew last week about this and is trying to get his troops to rebel.  Either way it is clear that AMR management has  a lot on their plate, and trying to protect the assets overseas and their big bonuses is getting tougher every day, after all you can’t fly planes without pilots to fly them or mechanics to fix them.