US airlines: a merger frenzy?
While Delta and Northwest airlines are in the midst of talks about joining forces, it was announced today that United Airlines and Continental are also negotiating a deal. And more may be on the way.
What are the reasons for this rush to consolidate? According to an article in BusinessWeek ("Survival of the Biggest", 2/14/08), there are several big ones. The newly solvent airlines have the specter of higher fuel prices cutting into their profits. But more important may be the threat of more European competition on the key moneymaker for US airlines; transatlantic flights. It hall has to do with the Open Skies treaty:
"In the near term, the treaty gives both U.S. and European carriers greater freedom as of Mar. 31 to fly more transatlantic routes," That means more flights from more European cities to more US cities.
And the Europeans are positioned to get the better, as they, unlike their US cousins, have money in the bank that they can invest in expansion.
But the biggest threat may be in the form of takeovers of US airlines yet another effect of the dwindling dollar.
"European carriers are publicly agitating to expand a new bilateral aviation treaty to gain the right to acquire or buy controlling stakes in the enfeebled U.S. airlines." Air France, British Airways, and Lufthansa are in good financial shape and are looking to expand operations.
AT the very least, they will be in a position to lend money to US airlines for the mergers and retain a persuasive minority position. At the best, if they can get the US laws changed, they will create transglobal airlines, IN nay case, US airlines look likely to have significant foreign ownership helping guide corporate strategy
It's useful to remember that when in 2000, United Airlines tried to acquire US Airways, the move was squelched by natitrust regulators. No-one thinks that will happen now, even with much bigger deals. Another inidcator of the decline of US antitrust regulation.
Once again we see American companies, once the initiators of global deals and the rich suitor become the pursued instead.
