Mergers: The Merged and Merging

Post 1978 Merger- Trans World Airlines merge with American Airlines.

Trans World Airlines was a long time running airline as one of the original big four in 1930 when Transcontinental Air Transport and Western Air Express merged to become Transcontinental & Western Air, Inc after “the Lindbergh Line” went into deep debt in 1928.  Transcontinental & Western Air, Inc (TWA) became a player in the private airmail routes the U.S. Post office was offering under the Postmaster General Walter Folger Brown. TWA became reliant on the mail subsidies when the great depression hit with uncertainty and incohesive management from both sides of the imbedded merge. Through World War I TWA made its mark flying the Army and eventually landed intercontinental experience and route. Becoming a direct competitor with the famous intercontinental Pan Am was a risky but created a good reputation. In 1950 the TWA acronym became official with the Trans World Airlines name change from “western.” In the 50’s TWA made some bad moves as Howard Hughes, the owner of the company (by shares), meddled in the benefits of having air travel at his fingertips. He missed the jet age by 3 years when Pan Am took the lead upgrading their fleet to Boeing 707. Hughes believed the direct competition laid within our country and stuck with Connies. By the time Hughes realized the jet age was here it was too, eventually putting his TWA stock into trust in 1960.  The Sixties were the booming era as TWA expanding to the Pacific and Atlantic worlds. Companies unable to compete via fares instead competed with the luxury. All the extremities to get the customer was the strategy of the airlines. The deregulation act of 1978 took TWA for a spin. At first the deregulation brought new airliners about, but eventually the big four were back at the forefront.  Trans World Airlines had a gradual descent into defeat as its competitors developed computerized reservation systems, frequent flier programs, wage scales, and inland international flight starts. Slowly TWA kept taking the beating, as hub “fortresses” became a strategic move and new more efficient planes. The slope finally became steep when TWA stock fell below the net worth of the airline.  In 1980 when Carl Icahn bought out most the stock he changed the companies philosophy. Forgetting how important the level of service is in the aviation industry Icahn hired low cost employees. By 1988 Icahn had loaded the company with debt up to its eyes. After making many poor choices of selling prime resources TWA filed for bankruptcy in 1992. Icahn fled the company allowing management committee of appointed employees take control. It took almost an entire decade for TWA to financially improve. Woefully once again, TWA filed for bankruptcy and in 2001 the 73-year-old company cease to exist when American Airlines bought all TWA possessions becoming the nations largest airline.

As you can see from the history lesson above TWA had a great run in the industry with its bumps in the roads for almost a century through its inception, mergers, vacuous owners, and even bankruptcy it stumbled and reaccredited its self to the public. Sadly there were many factors, which led to its gradual descent to the ground eventually ending in bankruptcy, which was inevitable with the amount of debt the company carried. Although if you back up you can see it mainly started with a greedy foolish owner with which was addicted to many various drugs throughout his climb and decent.  Then was passed on to not so great management where it took a spiral towards the ground. TWA is a classic example of how important good managerial set up is crucial to the longevity of a company. To learn more about TWA’s history I encourage you to make use of TWA Silver Wings and Centennial of Flight and their many links. Through the merge American made major cut backs causing half the TWA workers to become unemployed, cutting back on non stop service to 27 destinations, and using smaller planes. American gained with the merge Chicago, Dallas, and St. Louis as hub to the existing company. Many aviation consultants supported the American- TWA buyout, but soon after American bought TWA the nation was devastated with the 9-11 attacks. The aviation industry took immediate hit. We have all seen the outcomes of the terrorist attacks, the fall and now the industry is finally bouncing back more than 10 years later.  Within two years after the merge American had cut 80 percent of the TWA pilots and all of the flight attendants. Read more about the merge with USA Today. 

Current Merger- United Continental Holding, Inc. 

During the course of this next year United Airlines and Continental Air Lines will become one single operation. They are slowly working out the kinks of combining two sets of procedures into one concise set. When the merge is complete and they obtain their operating certificate from the FAA, United Continental Holdings, Inc. will officially be the nations largest air carrier.  Obviously we can see United made a good decision by taking over Continental to gain their assets to become the largest in the nation, but will stick over time as the competitors even out? As with all merges some things are lost, changed, or added.  Continental’s CEO Jeff Smisek was gung-ho about the merge after the announcement in 2010 expressed to Chron.com in the exact words “it’s a match made in heaven” as he stress to the reports the companies complete each other where the other is needed creating a perfect marriage. Unfortunately for 25 years Continental will say goodbye to its home in Houston to join United headquarters in Chicago. From the consumer perspective the merge is said to raise fares, but the consolidation will cut costs and boost sales. The fare increase will most likely be minimal and become undetectable to the general public. Continental has faced 2 former bankruptcies in its career and sees consolidation as a survival strategy. Will the consolidation of the majors into 3 companies really work? We will have to find out. The airlines started with the big four (five include Pan Am) we may be walking down the road again. The over used saying of “history repeats itself” is urging towards becoming true. 

Repercussions of American Airlines declaration of Bankruptcy

American Airlines in 2001 was the nations largest airline, but they have fallen to third in the last decade as its competitors merged and it stayed on the sidelines into bankruptcy. With this recent declaration there have been rumors of American Airlines possibly merging with Delta Air Lines, which is the second biggest air carrier at the present time.  Today, CNN announces that US Airways confirmed they have hired investments advisors to address the opportunity of bidding for American Airlines. The bankruptcy is crucial to the current American staff of 88,000. Tuesday there was a proposal to cut 13,000 employees to save 2 billion dollars in annual cost therefore possibly allowing American to recover from bankruptcy. There is also talk of liquidation of the company because it is said to be unattractive property according to two related and conflicting CNN articles (click here and here.) Sadly it seems American made a bad move by acquiring TWA in 2001. It was one of the first no-nos leading to this bankruptcy at hand. American acquired TWA during its stages of bankruptcy before TWA was able to restructure its cost configuration. Therefore American had to endure the expensive of former TWA’s old planes, which were not paid off nor up to the current efficiency standards of 2001. American tried to get ahead of the other Majors by working on consolidation early, but instead actually set themselves up for failure. Add the 9-11 attacks into the mix and we can conclude its not surprising American Airlines fell. From my standpoint it doesn't  seem like merging would be a good move for the company buying out American. Sadly, American doesn't have much to offer but old planes and debt. 

Mergers are a tricky business decision not only for the financials and major operations, but even the small simple decisions such as what brand of pretzels are we going to serve. Interestingly merge boards have to discuss everything which could be quite challenging, to say the least, as to preserve the best practices without alienating supporters of either.  I am intrigued to see the future of United Continental Holdings and who will pick up if any the crumbled left over of American Airlines. Reasonably, we can see how merger have a huge impact on the industry from both a pilot and managerial perspective. I have already discussed or made clear the bad choices of former company managers and their impact on the companies. Small mistakes can speak huge regrets and change the lives of thousands. On the pilot side of things the word furlough is not a foreign term. We are trained to accept the word with good intentions and uplifting thought for what is next. Constantly changing the plan is part of life and not uncommon to any aviator no matter what area of the entire aviation industry you are located within. The aviation industry may be principally a small community but it does remarkable things by the amount of people it influences over the vast geographical area it covers. There can be a lot of positives reflected on mergers but in the long run society will always focus on the negative. The United-Continental merger is estimated costing close to 3 billion dollars says the Los Angeles Times . That’s not just a chunk of spare change you go around wasting on financial deals. Then again even the simplest of relationships cost money and there are creating a relationship to “last a lifetime.”