Duffy Merger Comments
 

Even Sean Duffy is tired of hearing United and Delta pilots compare to each other. Looks like they gotta merge

United will merge with JB
American will merge with Southwest
Delta will take Frontier
Sunny and Allegiant will get Spirit as well
Southwest and Alaska

So, in this scenario is Southwest split in half to merge with both Alaska and American?

QUOTE=spooldup;4021393]
Delta will take Frontier
[/QUOTE]

this is definitely happening. We just have to figure out which century.

Maybe meant Hawaiian and Alaska?

Idk but I like the SWA/AS idea and think it’s kind of a dark horse with more substance than you’d think. I know they are still working on Hawaiian but it would certainly create a 4th global beast and dominate the west coast.

AS managers *very* much like their own jobs, and have always resisted M&A involving larger airlines.

The carry a fair bit of cash, and keep their debt fairly low.

They are boeing's home-town airline, fleet decisions appear to reflect that, and there's a lot of cross-pollination between the two BoDs.

If I had to guess, if AS is involved it it would be AS buying B6. The route structures are very complimentary so it makes good sense. They also have negligible overlap, so it would presumably get by the regulators (in the current regime).

and they could sell a healthy chunk of JFK slots to United to help finance it

and Scott Kirby’s very much in the ear of this administration if he got some slots sold to him from Alaska and JetBlue merger he’d be very for it

cause my understanding is, he just wants some slots for LAX and Sfo maybe sprinkle in Denver in Phoenix (phx just cause he spites American)

Kinda wish AA and AS teamed up. Would be beast with AS running the show

That’s a lotta Airbuses to park.

AS is the Chuck Norris of parking airbuses.

B6 is a different business model, SW is basically changing their DNA to be more like a legacy carrier. An AS/SW combo would be an instant contender. Not that I relish another merger!

Not until they are ALPA.

Gross, no thanks lol.

Yes SW is basically trying to become AS (product somewhere between LCC and DL gold standard). They haven't fully committed to heavy global reach with massive WB fleets.

Yeah, if you think getting bought by AS under ALPA rules is bad...

I don’t. Hence why better not to be bought by SWA, AAL, Or Allegiant

Hell to the NO!

If there was some way Alaska could acquire American and their management call the shots yeah, but I don't think ALK has the money. Even though American's market cap is a joke the real value of the assets (even with high debt) is close to that of Delta's and United's.

US and AA?

But you don't actually have to pay for the value of the assets... you only have to pay for 50% of the shares plus one share.

Worth noting that the market caps reflects not only debt and assets, but also perceived profit potential. So you could own a lot of assets with low debt, but still have low market cap if the market thinks you don't know how to make money with your expensive toys. Especially with a large airline where you can't just auction off the parts for cash... .gov will have an opinion on the matter if you try to part out a too-big-to-fail airline in 2026.

In reality you won't get a company for exactly 50% of the market cap though... in order to actually get enough shareholders to sell all at once you need to offer an acquisition premium which is sometimes north of 50% of market price. Possible exception if one entity holds 51% and wants to get rid of it (not likely for airlines)..

Then why do you think it was that Alaska was never bought out? Just looking at market cap there were several years where Alaska’s cash in hand practically could have paid for company.

I experienced the acquisition premium firsthand when a company I had private shares in was acquired by much larger company. It was roughly 3x book value.

Is 50% really needed? or just a controlling interest? Companies are often controlled by one rather large shareholder even if that shareholder doesn't own 50%.

Yes, you could do M&A if there is a very small number of other large shareholders who are very firmly in your camp and can be relied on to vote accordingly. Typically institutional investors like pension funds, or private equity, but could in theory be a rich-guy individual shareholder.

But if you're buying shares on the open market to acquire a large minority position, you will still have to a pay a premium so it would be risky business to rely on other votes, unless you're very certain.

Elliot did not do M&A with SWA, but they did a big management shakeup from a minority position, by recruiting other shareholders (not too hard, they were already annoyed at management).

I think generally when acquiring another airline for purposes of integrating into your operation (that's the norm due to scope) you would absolutely want a controlling interest so that you have complete freedom of action to make any and all changes. Don't want to risk other investor groups possibly vetoing certain parts of your integration plan.

Also the controlling interest threshold in some cases can be higher than 50% for purposes of approving major muscle movements. Depends on state law and also the way the company is structured... just because you *own* 51% doesn't always give you the right to dictate to the other 49%.

That's a good question, and I think the answer is complicated.

I think AS has some ties with Boeing. It is opaque to us peons what the exact nature of that it is, but I think other airline managers have a better idea.

There are corporate raiders who buy up unbalanced companies just to liquidate and sell off the parts. But that's not something you can do with any large airline in this era... too big to fail is also too big to get severely disrupted. So while AS might have a pile of cash, that's not really going to be of any value to raiders... they would need the cash to operate the airline, which is something they don't know how to do and don't want to do.

Airlines are quasi-public utilities in this era... you can own it but there limits as to what you can do with it.

When another airline buys an airline, it always seems to be pre-coordinated with large investors and BoD. You're not likely to be buying retail shares on the open market, you just get some larger investors to sell enough large blocks to shift control. That will normally still be at a premium, but it's negotiated in advance, not a bidding frenzy on the NYSE.

Trying to do an uncoordinated hostile takeover doesn't seem to be common with airlines in this era.

Whoever AS merges with in the future (B6, AA, WN) then it will be the AS team leading the combined carrier. Perfect opportunity for the AS C-suite to really grow to a much larger carrier. Personally I think it will be AS+AA.

It would absolutely be the strong preference of the AS team that they be the ones to keep their jobs.

But that probably precludes AA. Although Doug pulled it off. I don't know if the AS team would be willing to move to Dallas... they're pretty marinated in their SEA/PNW lifestyle and culture. Look at the resumes of the leaders, where they've worked, where they went to school. Definitely the SEA home team.

Although Boeing might approve of an AA acquisition.

No thanks. Most legacies are (mostly) doing just fine and a merger certainly won't help any of their pilot groups.

I think lifestyle preferences are secondary to just about everything involving this kind of move. They'll find a way to make it happen (if it makes financial sense), and those who don't want to make the move can stay behind and find something else to do.

It's not like it should take much convincing to move to become the CEO (etc.) of American Airlines.

Thank you for the educational answer. I’ve said for a while that in 10-15 years Alaska will be the #3 legacy, not American. I’m just a dumb ex accountant/pilot, but my guess is either through a merger with JetBlue or an acquisition of American where Alaska is the surviving management team and culture.

On a side note do you know anything about Nat Pieper? An American pilot said he was at a company function where he spoke. He said he was the first executive at American, since Crandal, that he heard speaking that didn’t sound like a complete moron.

Could be. I could see the CEO, who is not exactly a PNW native, maybe having ambitions that might involve a change of venue.

But many or most of the other AS execs and board members are *very* involved in the local community, and have been their entire adult lives. I'd expect them to tend to steer the ship in the direction of bite-size acquisitions where the HQ remains firmly rooted in SEATAC.

But who knows, maybe they'd think they could buy AA and keep the HQ in SEA.

Again, Boeing probably gets a vote. Not sure how they'd feel about their pet airline relocating.

Ah, so we care about pilot groups, but only at the legacies... got it.

Legacies are doing how they are now and running the country because of M&A, but now is the time to stop, because, well the poor pilot groups won't like taking a smaller company in....

There is zero way for any small airlines to grow much at all in spaces already dominated by 5 huge companies who make their money off credit cards and not actually flying planes. So yeah, M&A needs to happen.

If you don't think pilots are self-interested, you don't know pilots. Why should a legacy carrier pilot want a merger?

I can't wait for the seniority integrations.

There's no reason at all that any pilot GROUP at a non-broke airline would want a merger with any airline, especially one with poor economic prospects... the acquired pilot group will get seniority, but then everybody will get to suffer equally from the inevitable housecleaning and "synergies".

*Individual* pilots might want a merger, if they live in a certain base, or are very young and might benefit long-term from expanded network, fleet types, etc.

And certainly no pilot is obligated in any way to "desire" or "advocate" for mergers with broke airlines, for the purpose of sharing your seniority and economic prospects with the less fortunate. Everybody has known for 15+ years which four airlines (five if you count AS and just want job security) would have the best career prospects, if it was that important you should have pursued one of them (almost *anybody* could have for a few years).

If your game plan was to camp out at a second/third tier airline, build seniority and hope it would transfer to a legacy someday... well that's risky business. Can't be butt hurt if your desired great career didn't come looking for you.

Not that it matters anyway, pilot groups almost never have a say in mergers. The rare cases where we might have a say due to a hypothetical need to relax scope, I would expect the group in question to play hard-ball and protect their interests by getting something valuable in exchange.

But, what about the "Poor pilots?" /s.

Let me grab a stapler and then we can talk.

Ed was pretty clear in what he saw coming. Business in the LCC/ULCC do not make financial sense anymore. He predicts there to be M&A in that area.

JBU, F9, and NK will get gobbled up. I think that’s what’s going to happen.

allows everyone to bring fares up and right size domestic capacity.

I don’t see how having AL and AA merge make sense and benefit the consumer.

I think the case will be made that those ULCC/LCC businesses are bound to fail and we will come and save them and have some type of olive branch to guarantee fares stay low. Obviously fares will go up, but hey the superpac Airlines for America usually get what they want in the end of the day…

idk, I just don’t see this playing out where JetBlue gets bought and the rest of the low cost carriers don’t get absorbed just like Ed said happened in 09/10/11.

no one knows, but it seems like the big boys are projecting what they want to happen in this industry.

from Ed on the earnings call

“You have a considerable portion of the industry that has not returned its cost of capital, has not made a profit in years. Going back over the last decade when we saw consolidation happen, we forget what drove consolidation. What drove consolidation was higher fuel prices back in 2009, 2010, 2011, and we were the leaders in that with the acquisition of Northwest in 2008.”

“I anticipate higher fuel prices will cause much more significant structural reform than we’ve seen over this period. COVID, I think, was a different animal, where no one was strong enough to engage in the type of rationalization that was necessary.”

“As we look forward to building a healthier business for the future, there’s a number of business models that I think their owners are going to start questioning whether they continue to commit capital to. However that plays out, it’s going to be of benefit to Delta.”