Odds and Ends: Plane Business analysis of AA-US merger; Air Canada’s single-aisle competition

AA-US Merger: Plane Business made available Aug. 21 its previous analysis of the proposed American Airlines-US Airways merger outside its paywall.

The analysis of the government’s analysis is pretty devastating to the government’s case. Read it and judge for yourself.

American’s general counsel, meanwhile, writes (in a report in The Dallas Morning News) that there is no Plan B to exit bankruptcy if the merger with US Airways is successfully blocked by the Department of Justice. Instead, AA would have to create a new bankruptcy-exit plan and return to all creditors and the court. This would take probably another couple of years, making it one of the longest (if not the longest) Chapter 11s in airline history–with all the related uncertainty to those affected by a Chapter 11. This is unfair to creditors and employees, and it will also wipe out any gains shareholders obtained in the current plan.

The DOJ clearly failed to take into account these impacts.

Air Canada eyes CSeries: The Globe and Mail reports that Air Canada is considering the Bombardier CSeries to replace the aging Embraer E-190 and Airbus A319 fleets. We expect the competition to be fierce: Airbus will certainly do what it can to block this sale (through pricing, no doubt) and we wouldn’t be at all surprised if Brazil would offer export financing for a replacement E-Jet fleet–something Bombardier can’t match because of the so-called Home Country rule prohibiting government financing for home-country airlines.

And then there is Boeing. The entire Airbus fleet is getting long in the tooth and our market intelligence tells us Air Canada is running a full narrow-body competition between Airbus and Boeing.

A re-fleeting decision is expected by year-end.

MRJ First Flight Delay: It’s been widely hinted, but now a supplier told Flight International that the first flight of the Mitsubishi MRJ is delayed to the end of 2014.

17 Comments on “Odds and Ends: Plane Business analysis of AA-US merger; Air Canada’s single-aisle competition

  1. “The DOJ clearly failed to take into account these impacts”
    Scott,

    I am of the opinion that the DoJ should not consider the impact on creditors or the costs to the US tax payers for further BK proceedings when making their recommendations. Their charter is to uphold the law passed by congress and in this case, specifically the antitrust and fair competition legislation. If they feel that this merger will hurt competition and ultimately hurt consumer interest then it is their responsibility to block it. I do not know if this merger poses that risk (it may not) but In my opinion we already have too many groups listening to special interests and other entities instead of doing what the constitution and congress gives them a right to do but maybe I am just being naive.

    • I am of the opinion that the DoJ should not consider the impact on creditors or the costs to the US tax payers for further BK proceedings when making their recommendations. Their charter is to uphold the law passed by congress and in this case, specifically the antitrust and fair competition legislation.

      Couldn’t agree more.
      The amount of goalpost-moving and line-blurring that is going on in most op-ed pieces etc. that damn the DOJ’s actions…

      As for “Read it and judge for yourself.” – to truly enable your readers to do this, Scott, maybe you could post links to articles that have a different view of the DOJ’s antitrust action than yourself and 100% of those articles you linked to so far.
      A couple of places to start – and note that none of them are as black-and-white as most of the contra-DOJ pieces I’ve seen so far:
      http://www.washingtonpost.com/blogs/wonkblog/wp/2013/08/15/why-the-justice-department-blocked-the-american-us-airways-merger/
      http://www.theatlanticwire.com/business/2013/08/why-government-cant-allow-us-airways-and-american-airlines-merge/68323/
      http://www.petergreenberg.com/2013/08/14/why-the-justice-department-is-blocking-us-airways-american-merger/

      Quote from the first of these:

      The Justice Department’s decision to go to court to block further consolidation of the airline industry, along similar tough stances against Budweiser’s hookup with Corona and AT&T’s purchase of T-Mobil, signal a new era in antitrust enforcement. It’s no longer enough for companies and their lawyers merely to show that their mergers will result in cost savings and economy-enhancing efficiencies, under a presumption that a competitive marketplace will pass the benefits on to consumers. Given the level of consolidation that has already been allowed in most markets, companies are now on notice that they now have the burden of proving that post-merger efficiencies are likely to translate into lower prices, more choice and better service.

  2. Just like the recent IAG, I wonder how prohibitive it is to replace a pallet / container operation with a handloading 737 one.

    It may not be decisive, or will it? But what else would a 737-9 bring in, that a 236 seat capable LD3-45 competible GTF powered A321hasn’t?

    http://www.airplane-pictures.net/images/uploaded-images/2009-4/14/42480.jpg

    A320s and A321 NEO seem likely IMO, ACs negotiating position seems moderately strong.

    The A319s are not used with pallets and containers and the CSeries and Embraer E2 seem fierce, more efficient competitors. AC still has a large number of E190 options..

  3. As a regular flyer on AC I do hope to see E-jets or Airbus in the future as they way more comfortable than the Boeings (as on Westjet) and obviously the CRJs (which are awful).
    May be the C-series will be as good as the E-jets.

  4. Air Canada: No single type can do it all, E190 up to A321. When infrastructure for Airbus is present, new Airbus appears sensible. But why complement it downwards with the C-Series? After all, they share a very common engine, which should provide some maintenance advantage. I hope that Air Canada has some sort of patriotism when it comes to aircraft purchase. Looking at the seat figures, they can probably replace all A319 and E190 with the C-Series, plus a few A320.

    @CBL: comfortwise the C-Series should be in a league of its own. Despite wide seats, it also has that bonus of no middle seats before 80% load factor.

    • It was understanding that E-jets and C-series would have the same layout (2+3 in coach)

      • E-Jets have 2+2, C-Series 2+3. New E-Jets retains current fuselage, which kind of limits them 120 passengers. Although technically, E-Jet E2 and CS100 could both carry 110 people, the both aircraft represent a very different offering.

  5. That’s another point. AC bypassing the CSeries would send out a wrong signal to the industry. BBD and government will try to prevent that by all means. Which could work out well for AC.

  6. For Air Canada, cheaper airbus planes are favorite.
    Boeing has been caught sleeping at the controls by airbus low price drive. although ab claimed that they will not want more than 60% market share to avoid pricing war, that was a statement to fool the less savy.
    Ab claims that their planes are superior products but one wonders why will sell a superior product much cheaper than an
    inferior product?
    Boeing has to do something dramatic with the 737 to make it appealing to airlines as apparently it does not support pallet / container operation.
    I think the 737Max presented boeing with a great opportunity to add to the aircraft something that will give it an edge over competition but boeing failed to do so.
    Of late, boeing hasn’t won much in a narrow-body competition with ab due to pricing, at this rate the market share will be
    70% vs 30% in favor or ab by the end of the decade.

    • I think you completely missed the fact that Boeing was the one driving a price war in the MAX vs NEO battle, and Airbus lost a few customers on price. United and Delta come to mind. Note that it was not Airbus themselves claiming this, but analysts, including Scott here.

      The whole “Airbus undercuts on price” thing is a bit of an a.net myth that just won’t die. Also, I’d like to point out that Airbus is hugely profitable, so whatever price point they sell their planes at seems to work for them.

      • Didn’t we read somewhere that easyjet was recently going Boeing with new order until Airbus came with an offer so low Boeing could not match, or was that just a trick?

      • I’ve not seen it. Who was the source? I could find Boeing saw the contract as strategic to regain 737 marketshare in Europe. I guess their offer reflected that, including transistion costs.

        Anyway Easy doesn’t carry cargo so that didn’t play a role 🙂 Easyjet moves up from 154 seat A319 to 180 seat A320 which seem a reasonable step. If they came from A320s Boeing probably would have had better chances.

      • @ Keesje
        Well, how about this link?

        http://uk.reuters.com/article/2013/06/18/uk-air-show-easyjet-idUKBRE95H04W20130618

        From the link above:

        “Ultimately, Airbus offered us the best deal, and at a price with a greater discount to the list price than their landmark fleet purchase with easyJet in 2002,” she said.”

        So the discount was greater than 11 years ago when the fight for Airbus was really tough fighting to unseat the B737 and it had to come real low.

        If you need more proof than that, I don’t know how you can get convinced.

  7. What evidence is there that Airbus are undercutting Boeing apart from blind prejudice? All the evidence so far points to the reverse being the case.

    I think Boeing are caught in a difficult situation. The conventional wisdom seems to be that a new airframe is not by itself going to bring major new gains in efficiency so Airbus can wait for the next generation of new engines before needing a clean sheet design. If there is a trend towards greater mechanisation of luggage/cargo loading then Boeing may not be able to wait that long, if the 737ncannot be be so equipped, leaving Airbus the opportunity to leapfrog them when they sense a new airframe is needed.

  8. Last I recall, AA already had a reorganization plan for 12-14 months prior to Parker offering “lollipops” to the various unions. AA’s pre-merger plan had merit and I think that is the plan they should go back to and I don’t believe it will take as long as the “scaremongering” by the lawyers.

    United was in bankruptcy for 3 years. I don’t believe AA would be in BK for that long.

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