US Airways is readying for formal antitrust approval for a merger with AMR. Now is the timeframe for shareholders to demand an umbrella company to keep the two brands and save on merger costs.
Are you getting a sense of déjà vu? You should be – think back to 2006 when a certain US Airways launched a hostile takeover for Delta while it was in Chapter 11. And at the very same time SIA was trying to merge with Qantas. At the time we all thought great, consolidation is actually happening. The reality was that the whole lot failed. The world of economic crisis post 2007 is a very different place though and it has done a great deal to save the airline industry and level it off.
For the airline industry as a whole the 2007 banking crisis was the best thing that ever happened. For those reading that require a why - the answer is simple; oil fell through the floor, airlines that were propped up by governments have been let to fail (as they should have been from the word go), regulatory frameworks that were so unfair have been relaxed and airlines that needed to merge or be bought out have seen sense or been made to by economic reality, and governments are also now being forced to sell off national airlines. The years of massive overcapacity in the market forced upon it by outside influence is fading away – this is the time to invest. This service has stuck to its guns and still maintains that in the long term Spirit and easyjet are the best – if you had got in back in December when we mentioned the same then you would be in very good territory. In fact as you will see in the Americas news today below Citigroup has only just realized the value to investors in Spirit Airlines (have they been under a rock?).
In the here and now: US Airways Group aims to file paperwork with antitrust regulators by the end of next month for a proposed merger with American Airlines/AMR Corp.
US Airways believes securing regulatory approval for any future takeover attempt would increase the chances of success – and they are right. For US Airways shareholders this is a must as in this day and age an airline cannot waste fortunes on a takeover attempt only to have an antitrust ruling against them as has been the case in the past. US Airways also plans to conduct due diligence over the next few months before it can present the creditors committee with a formal proposal not subject to any conditions.
This US/AA merger will create opportunity for other airlines in the USA. Consolidation is good and many airlines will be studying the AA route network to see if their market share can be increased during any drawn-out merger process. US Airways will have to take a very close look at the United/Continental merger and have a think about how it can save losses from this. The best procedure would be to follow the IAG and/or LATAM template and to create an umbrella company and keep the existing brands going under that for the time being until new aircraft are delivered at which time they can be liveried as required (if that is required at all, which I feel it is not). So the next few months will tell if US Airways is going to give shareholder value or open-up opportunities for competitors. Beware...
Meanwhile over in APAC - Rumours in the Australian press have suggested that a consortium led by former Qantas boss Geoff Dixon and backed by multi-millionaire John Singleton could be looking to take over the Australian flag carrier.
Singleton described the airline as “undervalued” (which is obvious) and he has declared that he is ''always interested'' in potential deals.
In fact the crash in the company’s share price value now values the company at $1billion, while the company has $3billion in cash and assets – People should be jumping all over it.
Singleton told reporters: “'I'm interested in anything … I'll buy anything that's got $3 billion in cash. I wouldn't be worried about Qantas,'' he said. ''Qantas has got a future.''
He refused to confirm any involvement in a consortium bid for the airline.
As mentioned here last week and earlier this week: Qantas head Alan Joyce has prepared a defence team to fend off any hostile takeover attempts but he confirmed that the airline had not received any takeover offers. Macquarie Bank is advising Qantas on its defence strategy, while Citigroup is keeping a close eye on any unusual trading activity of the airline’s shares.
The main fear of any takeover by a private equity consortium is that it would likely result in the break-up of the airline, with the sale of lucrative assets such as its Frequent Flyer program, as well as subsidiaries Jetstar and QantasLink.