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AirlineForecasts Managing Partner Vaughn Cordle on why AMR and US Airways should consider a merger.
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AMR corporation huge story today the parent company of American Airlines filed for bankruptcy we have an analyst who says consolidation.
Meaning another merger should be the airline's next move.
You know he thinks getting -- with the US air is best bond coral is airline forecasts managing partner and chief equity strategist.
He joins us now so why US air -- Well if you look around the industry there's not that many media players left to do a merger.
And America and once they go through the car question of a bankruptcy will come out leaner.
And with a lower cost structure but -- still have too much debt.
And unhappy employees so if they were to emerge is is a hypothetical scenario with the US air they can create.
A billion to a billion half of cost or revenue synergies and they can divide that up among the stake voters in other words labor.
Could get maybe a half a billion half of the fact that the company may -- half billion.
To the new shareholders which will be the old creditors the current creditors so it's a win win win.
-- has strategic fit for the industry.
-- -- test of consistency in terms stakeholder.
Benefits.
Bond forgive me if this is a dumb question I just don't have not aware of what the rules are but it our foreign airlines allowed to purchase US airlines -- -- could.
Could -- -- for example because they have the cash and they've got virgin America.
Could they jump in here looking for the gate space in the -- space that they have coveted for so long.
-- foreign ownership rules and currently in place to do not allow a foreign.
Entity to own.
Our more than 49% of the share in other words they couldn't exercise control -- -- flow and management decisions so that's not gonna help American Airlines.
And they're not a fit.
Merger partner until they unload.
Sixteen billion in pension and health care obligations of which -- are underfunded by.
Closer to seven billion once they do the proper canning at the end of the year OK now you mentioned health care pension on the it we're talking about the union guarantees of course a guarantee when you go bankrupt goes out the window.
But what about the union overhang.
Over American whoever gets American -- also get the union and all those pensions.
Well no they -- because once the airline goes into bankruptcy which -- just filed today.
They are no longer going concern so the pension guarantee corps will step been.
And force an involuntary termination.
Because.
They guarantee.
The pensions and they will it.
Take over the assets and the liabilities and that relieves American Airlines -- cooperation of those obligations unfortunately.
The pilots as an example employees will get.
25 -- 35 cents on the dollar -- of their promised retirement which is the same thing at the US -- united.
And the other airlines at.
Went bankrupt in the past -- does it surprise you that it came to this point and everybody was saying why is American the only one that didn't restructure in bankruptcy.
And they just kept almost -- their heels and where they didn't denial.
I think a case can be made that they tried to do the right thing by -- not defaulting on the -- And harming the employees with the pension plans that would be taken over by.
A government semi government agency.
But on the other hand it meant that they could not enjoyed -- costs and revenue synergies produced and.
Merger which is typically around two billion dollars and a and B they never get the productivity.
Out of the employees or the.
Capital productivity.
That a bankruptcy allows in other words they can mark to market and shed.
General lower rather ownership costs let's say interest expense by -- -- 30% in a bankruptcy.
So because they didn't file bankruptcy today -- at a significant competitive disadvantage or gotten all this late in the world.
They've got the worst productivity.
And they are -- bankrupt company.
Bond court all airline forecast -- thank you very much appreciate it thank you.
