CHARLOTTE, N.C. -- As airlines move to consolidate the sector, the industry's 800-pound gorilla seems to be sitting silently on the sidelines.
Whether it participates or not,
will be heavily impacted by the outcome of the current round of merger discussions. American, a unit of
, is for now the biggest airline in the world, almost 20% larger than its nearest competitor.
But if the deals being contemplated get completed, American risks slipping to third.
In the near future, No. 3
and No. 5
could link up, as could second-largest airline
, owned by
, and fourth-place
Is that the way American wants it? Hardly anybody knows, because for the past several years, the carrier has resolutely declined to specifically discuss its potential role in industry consolidation.
For instance, CFO Tom Horton gave absolutely nothing away when he commented on mergers during a January earnings call. The views American has expressed publicly over the last several years can be summarized in a single Horton sentence: "We do think there's something to this, but there are a lot of challenges to consolidation in the industry."
Some experts, including Avondale Partners analyst Bob McAdoo, believe that American is likely to become involved. He has said American could bid for Northwest or, if that fails, seek to acquire
in order to block United from gaining the dominating Northeast presence it has always lacked.
However, were American to seek to pre-empt a Delta and Northwest merger, it might face problems because of the difficulty inherent in topping an all-stock deal and because it is already the largest airline, said a source familiar with the ongoing merger discussions. Additionally, a pact between Delta and Northwest could be sweetened with a cash infusion by the Skyteam global alliance, and it might be hard for American to respond, the source said.
The unfortunate history of American's recent merger efforts may well be a factor in its current analysis. "American has had considerable experience with mergers, and it's hard to say that in recent times they have turned out favorably," says consultant George Hamlin of Airline Capital Associates.
American acquired AirCal in 1987, Reno Air in 1999 and TWA in 2001. All three deals are generally felt to have been failures, producing headaches but no value.
Additionally, while the principal value of Northwest is its strong Asian route network, Hamlin notes that the network is focused on a hub at Tokyo's Narita Airport.
Yet "China is more important in the long run, and you don't need to serve China via Japan, especially with the new aircraft
the Boeing 787 that is becoming available," he says. "Not to say that it would not be a substantial immediate boost, but the dowry that Northwest brings to American is worth less and less as you go forward."