To merge or not to merge
The airline world is roiling with merger talk. Delta and Northwest have announced their engagement and the betting is on whether they will make it to the altar. The other airlines are assessing how the world will change should Delta and Northwest succeed in hooking up.
Continental and United Airlines were rumored to be close to a merger deal, however, the Continental CEO called the whole thing off. US Airways and United are beginning to explore a union, however, few airlines can match the labor problems that a US Airways/ United agreement would engender.
American Airlines, Continental and British Airways are looking at ways to set up an airline alliance, skirting the labor headaches of a merger but allowing more flexible scheduling with the blessing of the government.
Air France/KLM have already joined forces and are now making noises about possibly taking a financial stake in the new Delta/Northwest mash-up. So far, Air France/KLM has decided to stay out of the fray, however, their participation in the new company should not be ruled out.
The reasons for this merger mania that is gripping the airline industry are not clear. Delta claims that high fuel prices have forced them into the merger. Ironically, their investors could have made a killing if they had gone ahead with the proposed merger with US Airways several years ago. Delta, at the time, claimed they wanted to remain independent.
Continental Airlines claimed that these same high fuel prices made the possibility of merging with United Airlines unattractive and unworkable.
Lately, US Airways and United have begun a new spin on the merger game. They are floating the idea of dramatic capacity cuts as they pare hubs and route structure where they overlap.
Obviously, there are airline managerial gurus, bankers, buy-out artists and a planeload of lawyers that can preach the benefits of merging. But, so far, no one has really heard a good reason. With all of the machinations, the airline world is at odds over whether the cure to their financial malaise is to merge.
Unfortunately, there is more to merging than simply signing papers and changing the seating at the board of directors meeting. A workforce needs to be brought together, computer systems need to be aligned, reservation systems need to be integrated, aircraft need to be standardized, fleets need to be streamlined, independent contracts with suppliers need to be modified, municipal bondholders need to be notified, debt covenants need to be customized and much more.
Airline management is dysfunctional today. Imagine the struggles that will ensue as merger generated problems begin to proliferate and different corporate cultures attempt to find a common path.
US Airways, years after their takeover by America West, still does not have an integrated pilots union. Delta marching to the merger altar has a fleet of predominately Boeing aircraft while the bride, Northwest, flies a fleet of Airbus planes. About the only thing US Airways and United have in common are more or less the same company colors.
Perhaps, the best alternative would be to allow one of the major airlines to go out of business. That would allow capacity to be cut, a large swath of aging aircraft could be retired and no unions need to be integrated.
For certain, the U.S. airline industry is in for a change either through mergers or through the bankruptcy of one of its major players. Passengers will have to adjust to higher airfares and an acceleration of the unbundling of services that has been taking place over the past year.
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