Delta and TPG Capital, Sabre’s majority owner, have emerged as potential partners for American Airlines’ parent company, AMR Corp. – according to the Wall Street Journal, whose sources requested anonymity.
The firms join US Airways on the list of possible suitors for American.
US Airways has long been considered a potential partner, primarily because it was perceived as the last available “dance partner” for American after the Delta-Northwest and United-Continental mergers.
Executives of US Airways also have been vocal advocates of further consolidation. Also, an acquisition by US Airways could be an easy sell to regulators, since even after its 2005 merger with America West, the carrier only ranks fifth among large U.S. carriers.
Delta did its homework
The Wall Street Journal said Delta already has conducted an antitrust analysis on a possible tie-up with AMR and concluded that, with some concessions, such a deal has a good chance of passing muster with regulators.
Some analysts, including Standard and Poor’s Jim Corridore, believe that even with concessions, a Delta-American tie-up would not pass regulatory muster.
But Hunter Keay, an analyst with Wolfe Trahan & Co., suggested that if Delta were willing to assume the burden of American’s pensions plans, a deal might be approved.
AA’s pension burden is hefty . . .
The Pension Benefit Guaranty Corp. (PBGC), an independent agency of the U.S. government that insures the pensions of one in seven people in the U.S., is working to preserve American’s pensions.
The estimated amount insured by PBGC, if the plans fail, is about $17 billion, and the agency already is running at a $26 billion deficit due to companies dumping their pensions during the recession.
. . . but its assets are choice
Delta would be assuming a large burden, but it also would gain choice assets. Dallas was once Delta’s third-largest hub, before it gave up hand-to-hand combat with American in 2005.
American also has an extensive network in Latin America, where Delta has dogged its trail for several years.
After American filed for bankruptcy in November, Delta announced new flights to American strongholds, including Dallas, New York/LaGuardia and Miami.
Private equity suitor
Another possible suitor is David Bonderman’s TPG Capital, the private equity company previously known as Texas Pacific Group. The firm has considerable airline history.
Most notable was its 1993 rescue of Continental Airlines, then in bankruptcy, and the hiring of Gordon Bethune to complete the carrier’s turnaround.
It had less success with Midwest Airlines, which was acquired by Republic Airways and folded into Frontier.
An interesting side note to a potential bid by TPG is the fact that it is also a majority owner of Sabre Holdings Corp., which American is suing for antitrust violations in state and federal courts.
Early in the game
It is early days for all three potential bidders. They are likely to wait until American does its own housecleaning and paring. Delta in particular may want to snatch up some assets shed by its rival, rather than take on the burden of absorbing another huge airline.
“It’s still way too early to make predictions,” Rick Seaney, chief executive officer of FareCompare, said. “After all, the dance has just begun.”
But he also voiced a thought that must be going through the minds of current and past American executives, employees and passengers.
“For the first time, it seems to me that it’s just possible that venerable American Airlines – one of the largest airlines in the world and one of these best-known brands in the globe – might cease to exist.”