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Airlines: A Tale of Mergers and Bankruptcy

Delta Air Lines and Northwest Airlines are approaching a merger agreement that would create the largest airline by traffic, according to the WSJ. Both emerged from bankruptcy in the spring of 2007.

Bankruptcy which can allow reductions in labor costs, pensions, and the shedding of costly assets, such as planes and redundant routes, often helps potential partners realign their operations. Mergers can yield many of the same benefits but are often viewed as expensive and sloppy, especially if cultures differ. The Delta and Northwest deal is currently being held up as pilot unions debate seniority integration.

Here is a table of how fleet sizes have changed since airlines have merged. On an annualized basis, most fleets have grown less than 1% per year. Only low cost players Southwest and AirTran have significantly grown their fleets.

A Rundown of Airline Bankruptcy History and Performance:Northwest and Delta entered bankruptcy in September of 2005, and both emerged from bankruptcy in the Spring of 2007

  • Delta emerged from bankruptcy on April 30, 2007 after 19 months, and is down over 15% in that time
  • Northwest emerged from bankruptcy on May 7, 2007 after 20 months, and is down about 30% in that time

Bankrupt US Airways Group merged with America West in late September 2005, and shares are down over 28% since the merger.

  • US Airways filed for bankruptcy in September, 2004, for the second time.
  • US Airways filed for bankruptcy for the first time in August, 2002 after a failed merger with UAL Corp. in 2000 - 2001, and 9/11 caused and extended closure of Washington-Reagan Airport
    -The company emerged from bankruptcy in the Spring of 2003

UAL Corp. and Continental have also been mentioned as potential partners. It is also rumored that Continental and AMR , the parent of American Airlines have been in exploratory discussions. UAL's United Airlines filed for Chapter 11 bankruptcy protection in December, 2002.

  • UAL did not emerge from bankruptcy until February of 2006, after more than 3 years of restructuring, and is down over 10% since its emergence.
  • Continental declared bankruptcy first in September, 1983, and again in 1990, emerging in 1993 after an investment by Air Canada along with Air Partners and Texas Pacific Group.
    -Continental is up over 200% since it emerged from bankruptcy in 1993
  • AMR avoided bankruptcy in 2003 when it reached agreement with three key unions allowing it to reduce labor costs.
Symbol
Price
 
Change
%Change
AA
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AAL
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CPT
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DAL
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USG1
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LUV
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