In the first part of this series, I looked at the value of the support of labor unions and the mayors and airports of critical hub cities in terms of the potential merger between US Airways (UNKNOWN:LCC.DL) and American Airlines parent company AMR (UNKNOWN:AAMRQ.DL). Here, I will examine the value of the support of two more stakeholders in this merger.
Oklahoma Attorney General Scott Pruitt
While attorneys general from several other states have joined the Department of Justice to oppose the airline merger, Oklahoma Attorney General Scott Pruitt has sided with the airlines. Pruitt said in a statement: "This merger will benefit consumers by providing more choices and options." This position directly addresses the DOJ's concerns involving the limiting of competition in the airline industry.
But there is another motive for Pruitt to press for the merger: Oklahoma happens to be home to American Airlines' sprawling Tulsa maintenance facility. A merger between US Airways and American Airlines would put the new carrier on more solid ground, preventing the risk of job cuts that could occur if American were forced to reorganize on its own.
Pruitt provides a positive take on the merger, but the scope of his motivation centers around job preservation, not the promotion of fair competition as the DOJ would like. His view of the merger as increasing options for consumers follows the view of the airlines, but without Pruitt being tied to a hub airport or city that has a major risk of service cuts or increasing fares, his perspective is not likely to be a deciding factor in this case.
The bankruptcy of AMR left a lot of fear in its wake among all classes of AMR investors. Many of the same investors could remember the bankruptcies of Delta Air Lines (NYSE:DAL), United Airlines, which is now part of United Continental Holdings (NASDAQ:UAL), and even US Airways, which went bankrupt twice in the previous decade, once in 2002 and again in 2004.
Each time, these airline bankruptcies left common shareholders with nothing and other stakeholders with only fractions of their investments. United Airlines' bankruptcy was a particularly rough one, lasting three years and involving what was the largest corporate pension default in U.S. history. Delta emerged from bankruptcy faster but still wiped out common shareholders and forced losses on higher-level stakeholders.
Almost immediately following AMR's bankruptcy filing, speculation began to circulate about US Airways making a bid for the bankrupt airline. However, this was not enough to calm AMR stakeholders. They had seen a similar story before where both United and Delta were enveloped in merger speculation yet stakeholders still took losses.
However, AMR's decision to file for bankruptcy before burning up all its cash left more value to be divided up. In addition, a rally in airline stocks pushed US Airways shares higher, making them more valuable currency for the eventual all-share takeover bid.
Under the current merger plan, AMR unsecured creditors would receive their entire investment, giving them quite a positive outcome for investing in a bankrupt airline. But if the merger plan is blocked, AMR would have to reorganize without having valuable US Airways shares to give to stakeholders.
Because of this, these creditors have joined with the pro-merger side in a fairly expected move and now want to file a "friend of the court" brief in support of the airlines. While the support of financial stakeholders is welcome in this this case, it is unlikely to matter much to the DOJ. The DOJ is concerned primarily with competition and fair pricing, not the financial interests of certain stakeholder groups.
A "friend of the court" brief from the unsecured creditors would be expected to echo the points made by the airline. With this in mind, I do not see the support of AMR's unsecured creditors having much of an influence on whether the DOJ settles the lawsuit before trial.
A lot of parties have an interest in seeing the merger between US Airways and American Airlines succeed and they are not shy about voicing their opinions. Labor unions have held rallies, the mayors and airports have sent pro-merger letters, and many other parties have requested to file "friend of the court" briefings in support of the merger.
Each stakeholder group has its own interests and its own level of influence with whether a settlement is reached. As more parties take sides in this merger case, investors should continue to examine what their entrances mean for the merger's chances of succeeding.