Assignment 2: Mergers and Acquisitions

November 17, 2014
Contemporary Business

There are many reasons for two competing companies to merge together or for one to be acquired by the other. This paper will focus on the circumstances behind the merger of American Airlines, Inc. and US Airways Group, the positive and negative effects of the merger, the change in organizational structure, and whether or not there were any changes in human resources management practices due to the merger.
American Airlines, Inc. was formed in 1934 and has since grown tremendously. One of its competitors, since its formation, has been US Airways Group. On December 9, 2013, the two companies merged to form American Airlines Group. The merged venture is now headquartered in Fort Worth, Texas (American Airlines Group, 2014). “Under the terms of the merger agreement, US Airways stockholders would receive 28% of the diluted equity of the combined airline, with the remaining 72% diluted equity ownership of the combined airline to be distributed to American, its labor unions and current employees” (Bringardner, 2013). This merger creates the world’s largest airline, which can certainly be seen as a reason behind the merger. The new American Airlines Group is sure to become the biggest contender in the airline industry. “Worldwide, it will operate nearly 6,700 daily flights to more than 330 destinations in more than 50 countries. The two airlines, for now, have more than 100,000 employees worldwide” (Maynard, 2013).
Another contributing factor behind the merger of the two international airlines was American Airlines’ entry into bankruptcy in late 2011 (Bringardner, 2013). In an antitrust suit brought on by the Department of Justice on August 13, 2013, Assistant Attorney General William Baer stated that “both airlines are confident they can and will compete effectively as standalone companies” and that “A revitalized American is fully capable of emerging from bankruptcy proceedings on its own with a competitive cost structure, profitable existing business, and plans for growth” (Bringardner, 2013). Even still, U.S. Backruptcy Judge Sean Lane was still scheduled to hold a confirmation hearing regarding American Airlines’ status and reorganization plan on August 15, 2013. This called into question the validity of The Assistant Attorney General’s statement that American Airlines could once again be profitable and succeed without the merger.
With any merger or acquisition, there are always positive or negative effects. While stabilizing the finances of both airlines, especially those of American Airlines, is a positive outcome, there have also been some negative effects. One form of backlash from the merger was proposed by the Department of Justice in the aforementioned antitrust suit. “The merger would hasten airline industry consolidation, allowing the remaining airlines to more easily raise prices, impose new or higher baggage and other ancillary fees, and reduce capacity and service” (Bringardner, 2013).
Another effect of this merger, which can be seen as both positive and negative, is the requirement for American Airlines Group to relinquish both take off and landing slots as well as gates at airports around the country and abroad. One of the places that will be affected immediately by this is Ronald Reagan National Airport. In order to win approval from the Justice Department, “US Airways and American agreed to sell 134 take off and landing slots at Washington’s Reagan National Airport, as well as 34 slots at New York’s LaGuardia Airport” (Maynard, 2013). The airlines also agreed to give up two gates at Boston’s Logan Airport, Chicago O’Hare, Love Field in Dallas, Miami International Airport, and Los Angeles International Airport. While this is a negative effect for the newly merged airlines, as they will not be able to have as many flights as they did independently, this can be viewed as a positive result for other airlines. Slots and gates that were previously locked in by American Airlines and US Airways are now available to other airlines that could use them to grow within the industry. This will allow other airlines a chance to keep up with American Airlines Group.
With every merger there always comes the question of who will now be in charge and how the organizational structure will be affected. In the case of American Airlines Group, Doug Parker, the US Airways CEO and mastermind of the merger, is now in charge of American Airlines Group. Scott Kirby, president of US Airways, is now the president of the merged airline. Many of the US Airways executives are now getting key titles at the merged airline (Maynard, 2013). It makes sense that US Airways executives will be taking the lead on the combined airline since the merger also marks American Airlines’ emergence from Chapter 11 bankruptcy protection.
However, the organizational structure won’t be changing completely. A press release by Scott Kirby states that, while the airlines are merging as one, they will continue to function as two separate airlines for quite some time (Kirby, 2013). This means that for now, and the foreseeable future, if passengers buy their ticket from US Airways, they should plan to go to the US Airways gate. The same is true for American Airlines. Another constant, again for the foreseeable future, is the rewards points system for each of the airlines. In March of 2014, the new American Airlines Group joined OneWorld Alliance (Kirby, 2013). This allows passengers reciprocal lounge access and the ability to earn rewards points for both airlines. Other logistics are still remaining the same for the time being. Other examples include the colors on airplane tails and the uniforms worn by employees (Maynard, 2013).
While there will be some constants in the organizational structure, one major difference is the unionization of employees. Prior to the merger, American Airlines’ employees were not unionized and US Airways employees were. In a combined union election, airline employees voted on whether to join CWA-IBT, a joint union of the Communications Workers of America and the Teamsters. An overwhelming 86 percent voted in favor of unionizing (Jamieson, 2014). “Service agents at American have tried and failed to unionize before, losing a 2013 election by a mere 150 votes. The company opposed that campaign but remained neutral this time around, according to CWA-IBT. The union publicly supported the airline merger when it was being considered by regulators” (Jamieson, 2014). The unionization was a welcomed change for the employees as it provides more stability for their wages.
The unionization was not the only change for the new American Airlines Group. There are also necessary changes in the human resources management practices. American Airlines is recognized throughout the industry as “a very regimented, analytically focused, policy-driven company with strict rules and hierarchy” whereas US Airways is a much more informal place with a culture that “espouses corporate guidelines more than rigid rules and an almost entrepreneurial spirit where even half-baked ideas can, at times, get consideration” (Mcllvaine, 2013). Human resources will have more than just merging management styles on their plates. They will also have their hands full ensuring that employees can focus on their jobs during drawn-out airline-merger process. They will also have to manage the issue of seniority between employees of both airlines. “Eight years after the 2005 merger of US Airways and America West, seniority issues between the pilots groups at the respective airlines are still being resolved” (Mcllvaine, 2013). This history should not be taken lightly, but should instead be used as a much needed learning experience.
The merger of American Airlines and US Airways was a result of American Airlines’ bankruptcy status as well as the power the new airline will hold as the largest airline in the world. While there are a lot of benefits of this merger, the loss of take off and landing slots and gates paired would be a negative result for the airline. One a larger scale, the merger could lead to industry wide problems, including higher ticket prices and reduction of capacity and service. The merger would also result in changes in organizational structure and human resources management practices.

References

American Airlines Group. (2014, January 1). Retrieved November 14, 2014, from http://www.forbes.com/companies/american-airlines-group/
Bringardner, J. (2013, August 13). American Airlines/US Airways Merger Challenged: Under Fire From DOJ, State AGs. Retrieved November 14, 2014, from http://www.forbes.com/sites/spleverage/2013/08/13/american-airlinesus-airways-merger-challenged-under-fire-from-doj-state-ags/
Jamieson, D. (2014, September 16). American Airlines, US Airways Workers Vote Overwhelmingly To Join Union. Retrieved November 14, 2014, from http://www.huffingtonpost.com/2014/09/16/american-airlines-us-airways_n_5831918.html
Kirby, S. (2013, January 1). US Airways | Welcome. Retrieved November 14, 2014, from http://www.usairways.com/en-US/aboutus/pressroom/newamerican.html?cint=update_21132
Maynard, M. (2013, December 9). What To Expect Next From The American-US Airways Merger. Retrieved November 14, 2014, from http://www.forbes.com/sites/michelinemaynard/2013/12/09/what-to-expect-next-from-the-american-us-airways-merger/
Mcllvaine, A. (2013, March 13). The Air Campaign. Retrieved November 14, 2014, from http://www.hreonline.com/HRE/view/story.jhtml?id=534355081