The 2013 Merger of American Airlines and US Airways
|✅ Paper Type: Free Essay||✅ Subject: Business|
|✅ Wordcount: 2047 words||✅ Published: 8th Sep 2021|
Mergers and acquisitions correspond to the definitive changes for businesses. In the contemporary business environment, they are increasingly being adopted to enhance competition through increased performances. Similar organizations merge hence their long-term survival in the competitive environment (Weston, 2014). Typically, mergers and acquisitions result in organizational economic development. The companies involved grow their market share and capacity thus expanding on investment portfolios to facilitate risk reduction. They smooth the progress of entering new markets, adding up to shareholders value and offer better economies of scale. At this perspective view, nearly all publicly traded companies have experienced a major acquisition at some point in the United States, so did the American Airlines and US Airways in 9th December 2013. Both companies operate under the same radar of airspace business.
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The American Airlines and US Airways merged to form American Airlines Group, Inc. as a publicly traded airline holding company based in Fort Worth, Texas, United States. The target company was American Airlines. American Airlines maintained 72% of the company while US Airways took the rest 28%. The majority of the shares were distributed to US Airways shareholders and American Airlines previous creditors. This merge upshot the largest airline globally with 336 locations in 56 nations worldwide, over 6,700 daily flights, more than 100,000 employees and an operating revenue of $40billion. As yet, American Airlines Group, targets to take the delivery of over 600 new aircrafts including a minimum of 500 narrow-bodied and 90 wide-body international flights (American Airlines News, n.d.)
Circumstances that resulted in the merger of American Airways and US Airways
The foremost circumstances which lead to America Airlines and US Airways merger from an abstract point of view sets from the financial problems. US Airways was an American Airlines creditor according to a bankruptcy court filing stated under Chapter 11 bankruptcy protection. It had already undergone through more than a decade of losses and retrenchments. The management team had considered a stand-alone restructuring plan before. It also revealed that American Airlines looked forward to merging with another airline and US Airways presented the potential fit. Secondly, both companies had similar operations. These incidents gave rise to possible workable and potential merger action which materialised in the end as they both agreed to a merger.
Reasons that resulted to the merger
The first reason as to why the resulting decision to merge was made was the fact that the merger would create a book balance by absorbing out the bankruptcy court filing after appropriate paybacks and other payments. Henceforth, the merged company would operate in financial freedom achieved for the long-term outcome. Operating together with the pooled cost of capital would lower operational costs and realize increased returns than if the two companies functioned separately (Weston, 2014). It would be cheaper for both American Airlines and US Airways to internally invest and eye for expansion of its businesses and operations. Acquiring new aircrafts and other related assets would be cheaper because of the united bargain purchase.
Secondly, American Airlines and US Airways would result in a horizontal merger that would form a strong pillar to achieve a competitive edge in the global scale. This would lead to achieving additional value in airline operations and business on the international market. The projected synergy value, would direct the combined companies to forms that could yield higher revenues, lower expenses and the overall cost of capital (Cooper, 2014). The merger and acquisition of the companies would give the merged parties an edge over their rivals in terms of business opportunities. After the merge, they would exploit the emerging trends in the market together. This would also assist in gap filling of the party’s weakness and upbringing of significant strength paramount for dominance in the airline industry. These reasons moved American Airlines and US Airways to make the decision to merge.
Effects of the merger
Completion of the American Airlines and US Airways contributed to a number of significant positive effects. The major key benefit was power consolidation and control over the market. This facilitated the entry into new markets and larger shares in the existing market. It improved economies of scale which corresponded to acquisition of more assets in the form of aircrafts (Cooper, 2014). Sharing taxes increased monetary leverage making them utilize much of its benefits by saving costs (Ulijn, 2013). As a result, the combined airline company offered more convenient schedule to travel plans with access to more destinations around the world. Their combined fleet continued penetration to operate more routes with the largest fleets of airbuses throughout the world connecting more people and promoting diversification of global businesses and multicultural. For instance, it is already operates 336 destinations in more than 50 countries in the world. Currently, the combined company employs over 100,000 people across the globe (Cooper, 2003).
Merging the two airlines resulted in the formation of a strong union of a well organised customer service than before. The union undertook to oversee systematic arrangement in cases of bankruptcy hence giving workers more power to negotiate and maintain their wages. It lifted off workers’ suffering during the past years. Upon completion of the merger, it provided better benefits and compensation for the combined airlines employees. In addition, employees are significantly benefiting from being part of a leading international company with stronger financial foundation and competitive platform for greater long-term career opportunities as well as more employment opportunities.
However, the merging of the two companies had some negative effects as well. Their combination composes them to behave like a monopoly because of operating in the similar industry. Monopoly meant less competition and higher prices. Setting high flight prices due to lack of competition hurts the travellers and other service consumers. This lead to frequent lawsuits from the opposing bodies, this is disruptive to the thriving business (Cooper, 2003).
The merge of American Airlines and US Airways implied a combination of similar operational functions together with over capability. Most of the US Airways employees faced frictions by the internal competition and had to be retrenched hence the company ended up losing some of their skilled workers. Labor difficulties continued because of the bankruptcy which resulted in frozen pension and reduced benefits. For instance, the Labour Law still follows up in determination of fair terms.
New Organisational Structure Consequence to the Merger
The organisational structure consequence to the merger involved positional shift amongst the personell. Doug Parker, the pre-existing head of the US Airways became the C.E.O of the merged company while Tom Horton became the outgoing. He became the chairman of the new company’s board of directors. Derek DeCross maintained his role as the vice president of the global sales for the new American Airlines. President Scott Kirby held the same role at the new American Airlines. The rest of the organisational structure was a blend of positions that retained the most competitive human resource (Cooper, 2003).
Difference between the resulting Company and the Original Ones
There is a remarkable difference between the original company and the merger. This is attributed to the consideration that American Airlines was known to be traditional in terms of business promotion and conduct while US Airways was known to be less formal and transparent. The resulting new American Airline is a strong blend of their difference in culture, formality and transparency. American Airlines served 277 destinations while US Airways served 193 destinations. The new American Airline combined this number to form several more destinations connecting the world. The resulting company, therefore, formed a more stable structure that comprised of a bigger operational group than the original companies (Ulijn, 2013). Initially the original companies operated domestically but their alliance gives them power to function internationally paving way to global dominance.
Modification of Human Resource Management Practices
The human resource management practices of the company made adjustments to reflect on the outcome because this area proved a big challenge prior to the merger. Profit-sharing and performance incentives, direct compensation, retirement options and benefits packages were all upgraded and updated. They consolidated much of their training at the primary hub and at the new headquarters so as to provide the most comprehensive hands-on skills necessary for the processes of the merger. This went down to drive supervisors and managers at both airlines tasked with ensuring that employees focused on their jobs during the drawn-out airline merger. The initial combined leadership team was made to consist of US airways employees, but the split became more levelled in the managing and supervisory ranks (Cooper, 2003).
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The Human Resource department was rearranged such that it had US Airways on the communications side. More so, the US Airways had already snagged Chris Kelly Singley away from Delta; the best communication corporation group, to be the managing director of communication, very vital tool in the merger procedure. Chris was planned to technically work for US Airways where she would play a very important role in joining the American Airlines US Airways communications departments to support the new airline. From Kelly, the team was broken down to serve the airport functions geographically where the hub Vice Presidents would remain unchanged on the organisational chart. Regional carriers’ leaders were fetched from American while one cargo boss took over the similar position. Hector Adler was tasked to run the in-flight group at the new American Airline just as was the case back at US Airways. It was arranged that from US Airways, David Seymour would lead the maintenance group while someone from American Airlines would take care of base maintenance (Cooper, 2003). The rest of the unmentioned human resource team such as engineering and finance remained in their positions so as to enhance their responsibilities in the combined company.
Rational for modification
Modification of the human management practices had to be factored in to provide an organised platform for workflow and a better transition for the employees who had to leave work. The combined company needed the best practices for human resource functions as they are a fragile component of merger and acquisitions. Strategic decisions had to be centralised to one company. These practices were changed to reflect on the promotion fairness during working under a complex merger. Without the modifications in the practices, employees’ benefits for the combined company would be difficult to handle.
American Airlines News. (n.d.). Retrieved February 13, 2015, from http://hub.aa.com/en/nr/pressrelease/american-airlines-us-airways-merger
Cooper, C. (2003). Advances in mergers and acquisitions. Vol. 2. Amsterdam: Elsevier Science.
Ulijn, J. (2010). Strategic Alliances, Mergers and Acquistions: The influence of cluture on successful cooperation. Cheltenham, UK [u.a.: Elgar.
Weston, J. (2001). Mergers and Acquistions. Blacklick :: McGraw-Hill Companies, The.
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