US Airways (US) chairman and CEO Doug Parker last week wrote to company employees explaining US's deal with American Airlines' (AA) three largest unions to support an US-AA merger. One sentence from his letter jumps out to those of us who followed US's failed attempt to acquire Delta Air Lines in 2007: “To get to an actual merger, many more things must happen including gaining the support of [AA parent] AMR's creditors, its management team and its board of directors.”
This revealing sentence indicates that Parker and his management team have learned lessons from US's $10.2 billion hostile takeover bid for Delta, then in Chapter 11 bankruptcy restructuring as AA is now, and don't intend to pursue a merger if one is adamantly opposed by AA management. In 2007, Parker, not long removed from the America West-US merger, moved full speed ahead with the bid to buy Delta even as the airline's then CEO, Gerald Grinstein, and its board and creditors rejected the overtures.
Perhaps the most memorable moment in the US-Delta saga occurred during a Senate hearing in which Parker and Grinstein were seated side-by-side at the witness table. Parker touted the many synergies the combination would create and insisted there would be little if any reduction in service. Grinstein slammed Parker's analysis, calling the proposed deal “the poster child for the worst kind of merger” and then throwing this verbal grenade at his fellow CEO: “If you believe this merger won't lead to reduced service, you believe in Tinker Bell.”
Delta's executives strongly opposed the proposed merger from the start and creditors never warmed to the idea, finally convincing Parker that it no longer made sense to, as he put it, “keep chasing” the combination.
“I think there are a lot of tactical issues we could have done better but I don't think any of that would have changed the outcome,” US president Scott Kirby said when the saga had ended. “It's a whole lot easier to do a friendly deal. If you have a management team that says no, that ultimately becomes tough to overcome."
Of course, AA chairman, president and CEO Tom Horton has dismissed US's interest, saying there is no “easy path” that will allow AA to avoid job losses and fundamental reforms. But Parker's letter indicated that, in contrast to the strategy deployed when trying to acquire Delta, he would much rather convince (or, if you like, pressure with the help of AA's unions) Horton to go along with the proposal. It's hard to imagine US attempting another purely hostile takeover given the Delta experience.
This is likely to play out throughout the spring and summer. AA has at least until September to come up with a viable plan to emerge from the Chapter 11 bankruptcy process, and to bring its unions around. Parker is undoubtedly hoping there is turbulence along the way and that Horton, exasperated by labor intransience and unfavorable court rulings, eventually throws up his hands and accepts that a merger with US represents the least bad alternative.