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Wednesday, August 03, 2011

AA/BA Merger?

Could another big airline merger take off? The president of American Airlines‘ parent company hopes so.

In the New York Times Deal Book today, Michael De La Merced wrote: 

Thomas W. Horton, president of the AMR Corporation, told The Times of London that he hoped to see a merger of his company with the International Airlines Group, which owns British Airways and Iberia.

There is just one issue right now: United States law prohibits foreign entities from owning more than 25 percent of an American airline. But Mr. Horton said he hoped that would change in his lifetime.

American Airlines and British Airways already have an alliance in which the two share revenue and coordinate flight schedules. Mr. Horton said that a formal merger of the two was an inevitable next step:
“This alliance agreement with B.A. and I.A.G. is effectively a synthetic merger. Over time — I think in my working lifetime — foreign ownership rules in the U.S. will become more flexible. This alliance could form the basis of a cross-border merger between our airlines.”
The International Airlines Group is the far bigger company, with a market value of $7 billion compared with AMR’s $1.36 billion.  Shares in AMR were down 3.3 percent, at $4.10, in late morning trading on Monday. Shares in the International Airlines Group were down 2.9 percent, at 230.5 pence.

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What would this mean here in the US?  Today, American is on very tenuous ground, with pending litigation with its primary distribution channel and an enormous commitment to the new aircraft purchases.  Labor and fuel, its largest uncontrollable costs, continue to be problematic and as it seeks a sustainable model moving forward, moving closer to BA is,  I think, a good thing. 

Yesterday I got my retirement statement from AMR/American.  Despite all of my rantings about the lack of logic behind the commission elimination and trying to shift high yield distribution online, I still want the company to succeed.  And yes, I do depend on them for my retirement.  Unfortunately, I will be lucky if my retirement buys much more than a good case of wine per month. 

I would love to see the value of that retirement boost substantially.   I would definitely be in favor of this merger.  And who knows, perhaps I could add a case of champagne to the post-retirement equation!

Stay tuned.
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