This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Why Doug Parker's Legacy Hangs on a US Airways/American Merger

Stocks in this article: AAMRQDALLCCUAL

CHARLOTTE, N.C. ( TheStreet) -- A lot of people stand to win or lose depending on the outcome of the Justice Department's effort to block the merger of US Airways (LCC) and American Airlines (AAMRQ). But I don't think anyone has as much at stake as US Airways CEO Doug Parker.

Parker began running America West in 2001, just days before the Sept. 11 terrorist attacks. His first task as CEO was to spend weeks in Washington, begging for money so the airline could survive. Soon after the patient was stabilized, Parker turned his attention to seeking a merger, which has remained a high priority for the past nine years.

Five attempts have been made public, starting with the failed 2004 effort to merge with bankrupt ATA. So far, the only success in this prolonged endeavor has been the 2005 merger between America West and US Airways, which combined two weak airlines into one that is viable.

The deal was a big step up for America West, but the new US Airways doesn't amount to much as a global competitor, despite a nice trans-Atlantic hub in Philadelphia and a nascent Latin America hub in Charlotte.

The only way to get where Parker wanted to go was - and remains -- a merger with American, Delta (DAL) or United (UAL). This is not a new thought, by the way: Every US Airways CEO for the past four decades has known that the airline lacks a hub big enough to assure it can keep pace with bigger competitors. Parker began trying to bulk up almost as soon as the ink on the US Airways/America West documents was dry.

The 2006 attempt to merge with Delta might have been one of the wackiest merger efforts in history. I will never forget my amazement during a press conference where attorneys retained by US Airways assured reporters and analysts that the DOJ would approve, even though it was obviously anti-competitive and would have resulted in a single airline dominating both Atlanta and Charlotte, the only two hubs in the Southeast.

Talk about eliminating competition on one-stop flights -- which is the basis for the DOJ complaint against the proposed merger with American. The vast majority of flights within the Southeast, home to about 80 million people, would have been on the same airline.

On a conference call with reporters on Aug. 13, the day the suit against American/USAirways was announced, Assistant Attorney General Bill Baer was asked about previous airline mergers the DOJ had opposed. In his response, Baer commented on the 2006 bid for Delta, saying, "We were looking seriously at the hostile bid for Delta when that got abandoned so it's not the first time."

Given its opposition to a 2000 effort to merge US Airways and United, and now to the American deal, it seems clear that DOJ would also have opposed the Delta merger. Yet our 313 million U.S. residents include some number of attorneys who said or would have said that the agency would have just winked and nodded. This is why I always find it hard to take seriously what attorneys tell reporters about their cases.

When the Delta deal failed dramatically, Parker moved on to United (UAL). He got close, but then-United CEO Glenn Tilton turned around and closed a deal with Continental in 2010. It appeared that Tilton used US Airways, which wanted to merge, to enable a deal with Continental, which didn't want to merge and today probably regrets that it did. Tilton departed the airline industry after collecting $17 million for this act of black magic.

When American filed for bankruptcy protection in 2011, that opened a door for Parker. Using the experience accumulated in previous merger attempts, most particularly the Delta one, he put together a strategy that can legitimately be described as brilliant. He got unions involved and convinced them he was capable. He convinced Wall Street that he could replicate the America West/US Airways success at American. He used support among those two constituencies to convince American creditors that they would make more money with him than with American CEO Tom Horton. Then he gave Horton $20 million, a chance to declare victory and a one-year job as chairman.

Right now, I am writing a book about the merger tentatively titled American Plus US Airways: Building the World's Biggest Airline. Don't cry for me. I will have an equally good book, called The Curse of US Airways, if the merger fails. I have already laid out the concept.

I have been struck recently, as I conduct interviews for the book, when union people have told me they went through agony trying to figure out whether the America West people were for real. "There was enormous trepidation, at the beginning, over how to do this," one union person told me. "There was fear over whether they could even close a deal, given their history. Did they have the firepower to pull this off? Did they even have a business plan that worked?"

The point is that Parker has had to battle, every inch of the way, to get to a place where he was finally about to become the CEO of the world's biggest airline, as well as the leader of an industry that, partially as a result of his leadership on consolidation, has been able in recent years to begin to restructure itself into a viable, investment-worthy sector rather than a macho, roll-the-dice, fly-through-the-storm type of investment crap shoot.

Parker almost reached the ladder's top rung before somebody cut it off.

-- Written by Ted Reed in Charlotte, N.C.

>To contact the writer of this article, click here: Ted Reed

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,719.00 +33.27 0.19%
S&P 500 2,052.75 +4.03 0.20%
NASDAQ 4,701.8670 +26.1550 0.56%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs