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Mergers and Acquisitions

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Merger between American Airlines and US Airways

The two airlines American Airlines and US Airways merged on December 9th, 2013 to form the American Airline Group that became the biggest airline in the world. This merger was formed by the increased competition that airlines are facing in the business today. The merger presented an opportunity for both airlines to exploit the benefits of an extended network that would result after merging as opposed to when each operates independently. One of the main circumstances that surrounded the merger was the impending bankruptcy of American Airlines. The company had filed for bankruptcy in 2011 although it reverted to profitability in July the same year. The merger would increase access to business opportunities for both airlines, especially American Airlines that would reduce its exposure to financial risks, which was the initial cause for the company filing for bankruptcy. The merger would create increased synergies that would be evident through increased financial strength and flexibility in the market (DePamphilis, 2008).

Each of the merged entities would have access to more destinations and larger clientele. Each of them would access an increased network of destinations i.e. 330 destinations around the world. They also had a code share agreement where customers would seamlessly book their flights from either American Airlines or US Airways networks. Such leverages are an improvement to each of the airline’s capability and results to increased business and performance.

There are various positive attributes of this merger. One of the main benefits is that both airlines will have higher market penetration than what they had previously. This is because they will be making more than 6,700 daily flights to over 330 destinations in more than 50 countries around the world. It resulted to increased revenues and increased dominance of major routes. After the merger, the American Airlines Group is a leading player in the Latin American international airline market (CAPA center for aviation). Exploitation of these opportunities leads to improved market performance and greater capability to deal with competitive pressure. This is because the new airline, after the merger, has more resources at its disposal that lead to improved performance.

Another benefit of the merger is diversification and increase in the number of products offered by the airline (Boeh & Beamish, 2007). Besides the code sharing agreement that permits air travelers to book their flights from any of the company websites, there is increased access to one world alliance. This involves the increased networking opportunities for the airline through business agreements with other players in the industry such as British Airways, Iberia and Finnair. It allows the customers more air travel choices and memorable travelling experiences across a larger and more enhanced network. This improves customer satisfaction levels and is essential in developing customer loyalty.

The merger also creates one of the best-developed loyalty program i.e. Advantage (American Airlines, 2014). Customers have greater access to opportunities to own and redeem miles across the combined routes of both airlines. It makes the customers benefit from increased exploitation of capabilities and opportunities in the wider market. It also results in increased convenience for travelers, resulting in cost savings.

The new organizational structure has seen the retention of Doug Parker as the chief executive officer of the new entity. The merger has, therefore, seen the creation of only one chief executive’s position as opposed to two since each of these companies had its own chief executive previously. There were also significant changes in the board of directors for the new company. The new board of directors included five representatives for creditors of American Airlines and also four representatives of US Airways employees. The previous boards of the separate entities did not have such representatives.
Doug Parker was previously the chief executive and chairman of US Airways. However under the new dispensation, the chief executive will not be the chairman of the board.

The previous companies especially US Airways had various groups that used to operate under the chief executive. Such groups included revenue and marketing group, corporate affairs, and finance, as well as the operations groups. However under the new company, there are no such groups.

There were no major changes in the human resource practices after the merger. The new company, American Airlines Group, adopted most of its human resource strategies from US Airways and retained most of its top managers. The main reason the company made no significant changes in their human resource strategies is due to business reasons.

They wanted to maintain their combined market share where employees play a crucial role. They knew that maintaining their current employees rather than recruiting new ones would only exploit the more robust global network they had access to. This was reflected in the new setup where employee representatives directly represented employee concerns in the board of directors. This was aimed at enhancing the level of satisfaction for these workers. This is because higher levels of satisfaction increase employee retention levels. Most of these employees had served many years in both airlines and their experience was vital for the success of the new airline company.

The management at both companies had established that most of their non-impressive performances previously, such as those that made American Airlines file for bankruptcy in 2011 were mainly due to harsh market conditions. Employees had not contributed to the underperformance. The merger exposed the new entity to immense resources that could enable it to overcome these market challenges. In fact the merger was seen as an opportunity where the company would offer the employees increased compensation and benefits for their services (Bainbridge, 2003). It was seen as a chance to close the simmering feuds that had been persistent between the two companies’ management and labor unions representing workers. This was more prevalent in American airlines than at US Airways. It culminated to union representatives being incorporated in the board of the new entity to ensure employee concerns were not looked down upon.

The retention of most of the employees and virtually a parallel organizational structure is due to the efficacy of training such personnel on leadership qualities (Galpin & Herndon, 2007). This is because the new entity would incur minimal costs training these employees on aspects of leadership since the airline had acquired a larger global presence, as it became the largest in the world. The development of leadership qualities in all its employees is critical to the exploitation of the opportunities provided by the larger and more complex global market. Such employees are already accustomed to the inner operations of the airline industry as opposed to new employees that would require considerable spending on induction and training.

References
American Airlines. (2014). AMR merger investor presentation. Retrieved on 8th March 2014 from http://phx.corporate-ir.net/phoenix.zhtml?c=117098&p=irol-irhome
Boeh, K. & Beamish, P. (2007). Mergers and acquisitions: Text and cases. New York. Sage publications.
Bainbridge, S. (2003). Mergers and acquisitions. London. Foundation press.
CAPA center for aviation. (2011). US carriers continue to dominate Latin America's international market. Retrieved on 8th March 2014 from http://centreforaviation.com/analysis/latin-americas-international-market-still-dominated-by-foreign-carriers-61302
DePamphilis, D. (2008). Mergers, Acquisitions, and Other Restructuring Activities. New York: Elsevier, Academic Press.
Galpin, P. & Herndon, M. (2007). The Complete guide to mergers and acquisitions: Process tools to support M&A integration at every level. Upper Saddle River. Jossey-Bass.…...

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