US Airways Merger

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Robert Mittelstaedt, Dean of the W.P. Carey School of Business at Arizona State University, talks about the proposed merger between US Airways and American Airlines, and what it could mean for the Valley and the airline industry.

Ted Simons: A merger between U.S. airways and American airlines Is considered a near Certainty by many industry observers, but it may take A while for a final decision. Here with more on what a Merger would mean to Arizona And the airline industry is Robert Mittelstaedt, dean of ASU's W.P. CAREY school of business. Good to see you again.
Robert Mittelstaedt: Good to see you.
Ted Simons: Where do we stand on this proposed merger?
Robert Mittelstaedt: The markets believe it is going to happen. Stock of American airlines which exists as a penny stock has doubled in value in the last couple of weeks. And so the outside world believes it is going to happen but it is a very complex situation because of the bankruptcy, because of all of the unions involved, various negotiations, creditors, everything else.
Ted Simons: Is that why it seems to be dragging on so long?
Robert Mittelstaedt: It is much more complicated when you have a company in bankruptcy and creditors to deal with as opposed to just a board and stakeholders if you wanted to do a merger otherwise.
Ted Simons: Could American airlines be purposely dragging this out to perhaps get out of bankruptcy and change the whole dynamic?
Robert Mittelstaedt: There are people who believe that is what they are doing. They, in fact, seem to be doing better financially and operationally the last few months. So, they're in a better position both to negotiate a merger or avoid one if they can show great operational performance. On the other hand, I don't think that is what they ought to be doing. Somebody has classified this as the last great American airline merger, not the airline, but the country, because it is clear that American and U.S. air are both not anywhere nearly big enough to compete against the big global airlines now.
Ted Simons: With that in mind, what are the chances that American gets out of bankruptcy and emerges as an independent company and again either goes its own way or changes -- perhaps somebody else decides they want to get in on the merger talks.
Robert Mittelstaedt: It is all speculation at this point. I think it is unlikely that American will be independent for much longer. They may remain independent. They may be the winner, but they are probably going to merge with somebody now or relatively soon.
Ted Simons: And that is the best way to stay competitive is to get that merger going.
Robert Mittelstaedt: Yes, it has gotten to be an industry that is very good globally and with all of the connections that you need to make control of your -- keep control of your passengers, stay in control of the revenue base. They would prefer to do that with a large global airline of their own rather than having to do it through the alliances that they have. They will still use the alliances but they need a bigger reach.
Ted Simons: Impact on the airline industry as a whole, if the merger happens. In the industry as a whole, of course, American and U.S. airways would be bigger in total than united continental. They would be a clearly a very significant global player. Largest airline, make them the largest airline in the world by passenger count. And it -- it is just part of the airline both industry both consolidating and remaining fairly competitive.
Ted Simons: It seems as though, and I could be wrong here, but it seems in the past that many of the big-time mergers, airline mergers, they have all sorts of trouble. Even when it goes well it seems like there is some trouble. First of all, is that accurate? Secondly, if so, how do this deal stay away from that trouble?
Robert Mittelstaedt: It's Nontrivial to merge information technology systems and operating systems, because this is a heavily regulated industry, even the systems by which the pilots have to operate the airplanes may be slightly different, may be flying slightly different variations of the airplane and you need approvals and training and all kinds of things to go on behind the scene. A complex arrangement. Even if you had two airlines in great shape with everything going smoothly, putting them together is not a trivial issue.
Ted Simons: U.S. airway -- that particular merger went better than most. If that is true, does that mean that experience helps this particular enterprise?
Robert Mittelstaedt: U.S. air, American west merger went pretty well operationally and from a passenger perspective. They still have the two pilots unions still fighting with each other about seniority, now, what, seven, eight years later. That is an indication of how complex these things are. I think that America west -- I think U.S. air is in a good position, though, because the have improved operationally. They are in some dimensions rated by the public and the government better than American now in some areas. And so I think that that bodes well for them if they do put together a merger.
Ted Simons: And U.S. air is more profitable than ever, correct?
Robert Mittelstaedt: U.S. airways is doing well financially, yes.
Ted Simons: Let's talk about the impact of the valley. Tempe in particular, you have Arizona, the valley, whole nine yards. Losing the headquarters, what does that mean?
Robert Mittelstaedt: I think it is more of an ego thing. One spin that I would put on this, it is not just about losing the headquarters, the bottom line is if you have an airline that is not competitive in the world long term, you may lose more than just the headquarters down the road. TWA was a non-competitive airline, eventually absorbed by American and has virtually very little presence in St. Louis any longer, which is where it was headquartered previously. So, I think that this is an opportunity for U.S. air to merge and be stronger and to maintain the presence that it has here, less the headquarters, which is probably going to be a few hundred jobs lost and still stay strong in other ways in employment and all kinds of presence in the valley.
Ted Simons: What about the impact on valley travelers?
Robert Mittelstaedt: I think valley travelers would have even more opportunities than they have now. If you put American, which already has lots of Latin America and European routes -- together with one of U.S. airways biggest hub, a large hub in the southwest, you might see more routes to Latin America from here, for instance. U.S. air has some service there now but nearly as much as American does. Instead of flying from here to Miami to go to places in Latin America, you might start to get direct flights from here. There is a chance you could see an increase in the number of destinations that you would get from Phoenix.
Ted Simons: With that in mind, merger is going to happen and when do you think it is going to happen?
Robert Mittelstaedt: Odds are just a guess. I'm not on the board. They were talking about that yesterday and today I think. I would say there is a better than even chance that this merger will happen.
Ted Simons: In the coming months, later this year? In the next couple of months.
Robert Mittelstaedt: Next couple of months.
Ted Simons: Good to have you here.
Robert Mittelstaedt: Nice to see you.

Robert Mittelstaedt:Dean, W.P. Carey School of Business at Arizona State University;

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