When 1+1 equals zero
The announced merger of America West and US Airways is not good news for the airline industry. A fellow commentator described the proposed merger as an attempt to connect two one-legged men and create a healthy person.
But I think it’s worse than that. This American West/US Airways creature has two left feet. Consider:
- Nothing has changed.
- Overcapacity in airline routes will persist.
- US Airways will continue to bleed cash.
- America West will still be walking the money-losing line.
- America West worker morale will plummet.
- Union strife will increase between the two airlines’ workers.
- History will repeat itself with the Airbus deal.
- Taxpayers are going to take it in the shorts again.
At this point, I can’t see anything that makes me think that America West is better together with US Airways than it is apart.
Where is the magic potion that will stop the negative cash flow at US Airways? Where is capacity going to be cut to create a healthier climate for the industry as a whole?
The workers at America West, who have worked hard and managed to make the airline one of the few to recently turn a profit, have got to be incredulous.
Newspapers are already reporting that the union solution to the merger will be to intermingle the workers and then fire excess workers based on seniority. America West workers who were never under a threat of being fired, will now face the axe.
More so, questions loom over the workforce about merging vacation times, work rules, pay, medical programs, pensions and more.
From the public’s point of view, the only change may be seeing new paint jobs on the America West planes and a merged frequent flier program, since the merger of the workforce will take at least two to three years to complete.
The Airbus deal that has resulted in the new combined airline becoming the lead customer for the new Airbus A350 has ominous history working against the airline.
Few commentators recall that now-defunct Eastern Airlines was the lead customer for the Boeing 757 while it attempted to climb out of financial difficulty. Eastern was also the lead customer for the Airbus 300. Both deals involved major creative financing from the aircraft manufacturers. Eastern declared bankruptcy in spite of these efforts.
The track record for these mergers is dismal. Ask anyone from Pan Am, TWA or Reno Air. Someone always get the short end of the stick.
I’m willing to guarantee that in return for creating misery and uncertainty for faithful workers, the executive teams from America West and US Airways will award themselves millions of dollars in bonuses.
In this industry, experience would say, there seems to be too much money chasing dreams and not looking at reality. I can understand the big corporations looking for ways to delay their losses and searching for ways to recoup misplaced loans.
The new paradigm seems to be: old lenders encourage new lenders to dip into the market. The old lenders get as much of their money back as possible and then abandon the newcomers.
Notably, David Bronner, the once-burned, head of the Retirement Systems of Alabama, has not ponied up any additional funds. However, Alabama may still be in the mix as part of the creditor allocation of new initial stock.
The Airline Stabilization Board will have almost a billion dollars of exposure in this merger. They, as custodians of the public’s funds, should insist on repayment of their loans as soon as possible. Let other private lenders come on board. There is no need for the government to participate in this foolishness any longer.
The government is already saddled with pension liabilities that will continue to grow dramatically if more and more airlines jettison their pension plans to remain competitive.
Unfortunately, this merger is not the medicine that the overall airline industry needs. It only prolongs the industry’s agony. Until one or two of the majors is allowed to die, the rest of the industry will continue to suffer.