One of the more interesting stories in the financial news over recent months has been the merger of American Airlines and US Airways. The $17 billion merger created a variety of legal entanglements in regard to anti-trust requirements that held up the merger for several years. However, the problems were eventually resolved, and the two companies announced the finalization of the merger on December 9, 2013.
History of the Merger
Rumors of a possible merger began almost as soon as American Airlines filed for bankruptcy protection in 2011. Negotiation over labor contracts began almost immediately, and this willingness to iron out difference became that sign that both parties saw the advantages of joining forces. The airline industry saw a number of mergers over recent years, and both American and US Airways could see the writing on the wall. American needed to add more destinations and planes to get there. US Airways needed greater name recognition and a larger airlines reputation for reliability.
Justice Department Concerns
The sheer size of the proposed, merged airlines was sufficient to alert the U.S. Justice Department’s anti-trust division to look into details of the venture. It saw some of the same moves being made as in the AT&T/T-Mobile deal, with labor support of the move being a huge flag for possible anti-trust violations. The Justice Department is constantly on the lookout for empire-building schemes that have little to do with increasing business or serving the public needs. If laying off redundant workers and higher profit margins are the ultimate aim, it is likely that competition will suffer, leading to high prices for consumers. However, the Justice Department filed papers in mid-November of 2013 announcing a settlement of the issues involved in the case, clearing the way for the merger.
The new, merged airline is going to take on the American Airlines name. US Airways shareholders will hold 28 percent of the merged company’s common stock. American Airlines stockholders will hold 72 percent of the company.
How The Merger is Expected To Go
Unlike many mergers the American-US Airways venture is expected to avoid layoffs of workers. This came as welcome news to the more than 8,000 American Airlines employees working out of the Chicago airport. The airline even expects to hire back some of the workers they let go at the time of the bankruptcy protection agreement in 2011. Vice president at US Airways Donna Paladini notes that companies find it best to go along with the larger companies system to smooth the transition, so American will be leading the way in the changeover to the combined airline system. The merger of Continental and United in 2010 highlighted some of the problems that often occur with mergers. The new American Airlines is committed to avoiding these upsets.
What The Mergers Means For Air Travel Customers
The finalization of the merger means that only four airlines will control 85 percent of the airline market in the United States. American, Southwest, United and Delta will control the skies and, essentially, the pricing for air travelers. This is expected to lead to higher prices overall. However, it also means that lower-cost options will be available for more cities around the country. This feature could help boost the airline industry at a time when the economy is improving and more people are interested in making holiday and vacation travel plans.