American Airlines has rejected the idea of a merger with United Airlines, but its carefully worded statement leaves open the potential of consolidation in a different way.
American Airlines has now publicly rejected the idea of a merger with United Airlines, which never struck me as a very serious proposal in the first place considering the behemoth carrier it would create at the expense of competition in several key markets.
Here’s the statement in full:
“We appreciate the leadership and strong support of President Trump, Secretary Duffy and numerous other leaders in the Administration who have demonstrated expertise and an ongoing commitment to continue to improve the world’s best aviation industry.
“American Airlines is not engaged with or interested in any discussions regarding a merger with United Airlines. While changes in the broader airline marketplace may be necessary, a combination with United would be negative for competition and for consumers, and therefore inconsistent with our understanding of the Administration’s philosophy toward the industry and principles of antitrust law. Our focus will remain on executing on our strategic objectives and positioning American to win for the long term.
“We look forward to continuing to work collaboratively with the Administration as it takes steps to strengthen the broader airline industry.”
The statement was shared yesterday as speculation has swirled this week about whether United CEO Scott Kirby could possibly have been serious in floating the idea of an AA-UA merger to the Trump administration and reportedly to even Trump himself.
> Read More: United Airlines CEO Floated American Airlines Merger To Trump In White House Meeting
American Flatters Trump, Then Draws A Very Specific Line
The opening flattery is notable. Praising President Trump, Transportation Secretary Sean Duffy, and the administration’s “expertise” sounds very much like it came straight out of Scott Kirby’s playbook. Kirby has shown a real instinct for flattering this White House and framing his ambitions in terms the administration wants to hear.
American is doing something similar here and that reflects the reality that we are in a unique regulatory period (not that, in retrospect, it has gotten UA what it wants when you consider the restrictions introduced to Newark and Chicago O’Hare).
But it’s not the Trump administration alone that can sign off on mergers. States and foreign governments may also have a say and a future administration could undo any merger pushed through in the final years of the current regime.
American is only saying that a merger with United would be anti-competitive and bad for consumers. That leaves plenty of room for another transaction that is smaller, easier to defend politically ahead of of midterm elections focused on rising costs, and perhaps easier to sell to regulators.
If American merely wanted to knock down the United rumor, it could have stopped after saying it was not in talks and not interested. Instead, it went further and said that broader changes in the marketplace may be necessary.
And that immediately raises the JetBlue question once again.
JetBlue is exploring strategic options, including a possible sale, while American has its own balance sheet issues and still has obvious structural weaknesses in New York. A United-American merger would likely be dead on arrival from an antitrust perspective. But JetBlue is another matter entirely.
That does not mean an American-JetBlue tie-up would be easy. The Northeast Alliance was already struck down in court, so any renewed effort to tie the two airlines together could face heavy scrutiny from foolish judges miscounting the Clayton Act (provided a state regulatory body or other parties had standing to sue). Still, it is a much more imaginable scenario than United and American trying to combine into one giant carrier.
Could American Buy JetBlue And Then Use Bankruptcy To Clean House?
I am not an M&A expert, but could American theoretically absorb JetBlue and then use Chapter 11 protection to renegotiate its own debt load and JetBlue’s debt load in one sweep?
In theory, bankruptcy can be used to shed debt, restructure obligations, and emerge as a stronger carrier. We have seen that before in this industry. American itself knows that very well. But buying another heavily indebted airline and then heading into bankruptcy protection sounds like a hugely complex, highly risky maneuver that would depend on regulators, creditors, labor groups, lessors, and the courts all tolerating the plan…a big risk that could backfire in a way that leaves AA far weaker than it currently is.
Then again, if American truly believes that some kind of broader marketplace change is coming, and if JetBlue becomes distressed enough, it is not crazy to wonder whether American might see opportunity in trying to bulk up and then restructure from there.
I am not saying that is the plan, but American’s wording invites exactly this sort of speculation.
CONCLUSION
American Airlines has made clear it has no interest in a merger with United. But it also went out of its way to say that “changes in the broader airline marketplace may be necessary,” and that is the real story here. Whether that means JetBlue or some other form of restructuring remains to be seen, but it seems AA realizes that its own status quo is just not working.
image: American Airlines
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