Merger Between American Airlines and US Airways free essay sample

Mergers and acquisitions (MA) are aspects of corporate strategy, corporate finance and management dealing with the buying, selling, dividing and combining of different companies. These similar entities can help an enterprise grow rapidly in its sector or location of origin, or a new field or new location, without creating a subsidiary, other child entity or using a joint venture. The difference between a merger and an acquisition has become increasingly blurred in various respects in terms of the ultimate economic outcome. From a legal point of view, a merger is a legal consolidation of two companies into one entity, whereas an acquisition occurs when one company takes over another and completely establishes itself as the new owner. In this instance the target company still exists as an independent legal entity controlled by the acquirer. A deal that is an acquisition for legal purposes is considered a merger of equals if both CEOs agree that joining together is in the best interest of both of their companies. We will write a custom essay sample on Merger Between American Airlines and US Airways or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page When the deal is unfriendly that is, when the target company does not want to be purchased it is almost always regarded as an acquisition. In early 2013, American Airlines announced that it would merge with US Airways to form the largest Airline in the United States. The nations airline industry has undergone so many mergers in the last decade that only four airlines and their regional carriers control more than 80% of all domestic air traffic (Martin, 2014). Despite warnings from consumer advocates, the merger mania is having a positive effect on the industry and is partly responsible for keeping fares low, according to a new study by Price Waterhouse Cooper (Martin, 2014). This merger was driven by trade unions and the senior management of US Airways, CEO Doug Parker (Lawton, 2013). American Airliness main unions backed the merger because it promised less job losses than the alternative if they stayed solo. In the United States, trade unions have a stranglehold over much of the industry, stifling innovation and change. The added value that US Airways brings to American is the ability to rationalize the route network, combine purchasing, maintenance, and repairs, and dominate certain routes (Lawton, 2013). This strategy could be seen as defensive rather than a proactive one and to many people is considered a plan to improve operational efficiencies. American Airlines Senior Vice President Gary Kennedy commented that the merger would ensure the new company (to be called American Airlines) is better positioned to deliver for customers and its people (Lawton, 2013) . US Airways Executive Vice President Stephen Johnson noted that the deal would provide the airlines customers with a broader network, more choices, and better service (Lawton, 2013). Critics of the deal argue that it will result in reduced competition, less choice, and higher prices for the traveling public. Beyond operational and financial synergies, this merger does not fix many key competitive challenges that haunt both airlines. The purpose of this merger is to increase cost efficiencies and achieve economies of scale. However, bigger is not always better. American Airliness premerger strategy made a lot of sense: Focus not just on operational efficiencies but also on customer effectiveness and global competitiveness. On customer service, U. S. airlines was lagging behind much of the world. It is difficult to see at this point how the new merged entity is going to explicitly improve the customer value proposition or increase international competitiveness. The stock of American Airlines Group Inc. will trade on the NASDAQ Global Select Market under the symbol AAL. Under the mergers terms, US Airways Group common stockholders received one share of common stock of American Airlines Group in exchange for each share of common stock of US Airways Group they held (World, 2014). The combination is likely to be the last major move in the consolidation wave that has reshaped the US airline market in recent years. As part of a deal with the Justice Department to push through American’s merger with U. S. Airways. American Airlines plans to end its direct flights from MSP to New York’s LaGuardia and Washington’s Reagan National Airports. American agreed to give up some of its airport slots to lower-cost airlines (Brown, 2014). One benefit of the merged airline would be more hubs. Keeping both American and US Airways hubs would make it easier to handle weather problems or mechanical issues (Brown, 2014). It’s a real advantage to travelers because the system is more redundant and it has a lot of back-up at multiple hubs. US Airways top executives will hold more of the top leadership spots at the new American Airlines. Current US Airways CEO Doug Parker will lead the merged carrier. Five of the top eight executives named to his post-merger management team will come from the US Airways side. American CEO Tom Horton will become chairman of the board and will stay on through the first meeting of the new board next year. Upon exploring the American Airlines website, they have loaded a message for their customers, â€Å"Creating a stronger airline for you†. The message states: â€Å"This is an exciting time for our employees and customers. Through our merger with US Airways, we’re able to provide you with greater schedule options, access to more destinations around the globe and a modern fleet. On January 7th, we began rolling out enhanced benefits to you, including:  ¦More opportunities to earn and redeem AAdvantage ® miles when flying on American or US Airways, with all eligible travel on either airline counting toward elite status qualification in the program of your choice  ¦The ability to easily stay connected while you fly with Monthly Traveler and Daily Wi-Fi passes, which are now valid on both American Airlines and US Airways flights  ¦Reciprocal benefits for elite status members when flying either airline, including First and Business Class check-in, complimentary checked bags and priority security and boarding  ¦More lounge access, with reciprocal club access for Admirals Club and US Airways Club members â€Å"We’re starting to combine some of our flight schedules and are now selling codeshare tickets for flights beginning January 23, 2014. This means more access to our expanded network. Our codeshare with US Airways means that we are able to sell seats on each other’s flights† (American Airlines, 2014). So what is next for American Airlines? The company’s leaders admit that they have a long way to go to integrate loyalty programs, systems, operations, workforces and fleet. All of this will take some time, but they promise to keep their customers updated as changes are made that benefit the customer. Coming up on the horizon, US Airways will join the oneworld ® alliance on March 31, 2014, this will allow customers to enjoy access to even more destinations around the world through our vast global network (American Airlines, 2014).