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What a US Airways & American Airlines Merger Would Mean

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On Friday, it was announced that US Airways made deals with three American Airlines unions. Today, American Airlines started bankruptcy proceedings where they are looking to trim union expenses by $1.25 billion. The Travel Detective takes to his blog to offer a little history on US Airways and American Airlines as well as his thoughts on a potential merger.

About two years ago, some analysts first floated the idea of a merger for US Airways. After all, the airline was the smallest of the legacy carriers, a stand alone airline with only about 8 per cent of market share. Back then, one of the potential suitors was…American Airlines.

Funny how times have changed. Last November, American filed for Chapter 11 reorganization, and the merger/acquisition rumors started flying again. Would Delta buy American? Would Delta go after US Airways? Or would US Airways go after…American?

The most likely scenario turned into a real one last week when US Airways announced it was pursuing American, even before it emerges from bankruptcy.

In a letter to employees, US Airways chairman Doug Parker, who had made an unsuccessful bid to go after Delta a few years back, announced he had filed a statement (a form called an 8-K) with the Securities and Exchange Commission disclosing that the airline had signed agreements with the three unions that represent nearly 55,000 American Airlines employees: The Allied Pilots Association (APA), the Association of Professional Flight Attendants (APFA) and the Transport Workers Union (TWU), which represents all of American Airlines’ mechanics and fleet service employees.)

In what could only be described as a smart and essential move, it turns out that Parker had been in discussions with these unions for quite some time. At the same time, American Airlines was planning to go to bankruptcy court today, April 23, to seek court approval to void its existing contracts with its unions.

What Parker did was go to those unions and more or less ask them if they wanted to cut a better deal with him than they could conceivably ever get from American, including promising better wages and fewer layoffs.

It was — in relative terms under the circumstances — an offer the unions needed to consider. American proposed to cut 13,000 jobs as part of the bankruptcy.

US Airway’s merger offer to the unions proposed saving at least 6,200 of these positions. It didn’t save all the jobs, but was positioned to be decidedly less painful. The result: The unions jumped on board. Shortly after US Airway revealed it had had those discussions last week, the three unions issued a public statement announcing their support of the merger.