RockBottom

American Airlines 'must be part of consolidation'
James Doran in New York

Hannes Smarason, the chief executive of FL Group, believes that American Airlines should play an active role in the current consolidation of the US airlines sector and is seeking a meeting with the carrier’s board to discuss his plans.

Mr Smarason told The Times last night that the playing field had changed significantly in the United States since the last time that American Airlines, the world’s biggest carrier, tried to strike a deal. In 2000 American attempted to merge with US Airways but competition authorities blocked the deal.

“I think enough has changed in the industry since then that American should be seen as a candidate,” Mr Smarason said. “American could and should be a part of the consolidation.”

The move comes after FL Group announced the $400 million (£205 million) acquisition of a 5.98 per cent stake in AMR, the parent company of American Airlines, to become the airline’s third-largest shareholder.

He added that he had asked for a meeting with the airline’s board but would not divulge the precise nature of the discussions that he planned to have. “All I will say is I would like to see them and I would like to meet them to discuss my views, and you know what they are,” Mr Smarason said. “For the most part, as any big investor, we would like to sit down and have a chat.”

Speculation surrounding possible deals in the American airline sector has increased since last month, when US Airways launched a hostile takeover bid for Delta Air Lines. Delta has rebuffed the approach. UAL, the parent of United Airlines, America’s second-largest carrier behind American, is in early stages of talks with Continental Airlines.

The merger speculation comes as US airlines are set to record their first profitable year since 2000 and are enjoying surging share prices. Shares in AMR have gained more than 35 per cent this year. Continental’s shares are up 95 per cent.

FL Group, which is 18 per cent owned by Baugur, the Icelandic investment firm that owns several British high street retailers, including Oasis, Karen Millen and Hamleys, has made millions through buying and selling stakes in airlines and other businesses. This week FL Group sold Stirling, a Danish low-cost airline, for about £142 million to Northern Travel, another Icelandic consortium, of which FL Group owns 34 per cent. Northern Travel will also own Iceland Express, the low-price Icelandic carrier, 51 per cent of the British-based charter airline Astraeus and 29 per cent of the listed Swedish travel agent Ticket.

FL Group bought Stirling in October for $240 million after making a £98 million profit on the sale of a 17 per cent stake in easyJet, the British no-frills airline, in April.

The deal, which came after 18 months of speculation about a bid for easyJet from FL Group, shot the firm into the spotlight in Britain, alongside fellow Icelandic firms such as Kaupthing and Baugur.

FL Group also owns 23 per cent of the Finnish flag carrier Finnair but sold its stake in Icelandair for a profit of 26 billion Icelandic kronur in October when the airline floated on the Icelandic stock exchange.

This month, FL Group signed a three-year equity finance facility with Barclays Capital for up to €400 million (£270 million).

FL Group is a partner in Unity, an investment vehicle co-owned with Baugur and Kevin Stanford, the retail entrepreneur, which holds stakes in Moss Bros, French Connection and Woolworths, the high street retailers, and was a partner in the buyout of House of Fraser, the department store chain, that was completed last month.

jetblaster

FL Group, which is 18 per cent owned by Baugur, the Icelandic investment firm that owns several British high street retailers...

This week FL Group sold Stirling, a Danish low-cost airline, for about £142 million to Northern Travel, another Icelandic consortium, of which FL Group owns 34 per cent.

Northern Travel will also own Iceland Express, the low-price Icelandic carrier, 51 per cent of the British-based charter airline Astraeus and 29 per cent of the listed Swedish travel agent Ticket.
--------------------------

The deal, which came after 18 months of speculation about a bid for easyJet from FL Group, shot the firm into the spotlight in Britain, alongside fellow Icelandic firms such as Kaupthing and Baugur.

FL Group also owns 23 per cent of the Finnish flag carrier Finnair but sold its stake in Icelandair for a profit of 26 billion Icelandic kronur in October when the airline floated on the Icelandic stock exchange.


Wow. I haven't seen this much in-bred corporate hi-jinks since Enron. Looks like FL is just a corporate raider who comes in, slashes costs, makes a lot of merger noise, jacks up the stock price, then sells their stake and runs off with the money to create another airline mess. No doubt they count on the pre-disposed tendency of airline execs to shoot for the short gain rather than long-term corporate integrity.

AA employees better start firing now...foreign owners trying to churn the company for a few million is not worth the pain for the employees.

This FL group is trouble.

Jetblaster

HSLD

Anyone who thinks Mr. Doran should actually do some background research on his stories; raise your hand.

jetblaster

Yeah...because, in an article in USA Today's Business Traveler section, David Grossman says it was US Airways/United...

http://www.usatoday.com/travel/colum...grossman_x.htm

Whether or not Delta cooperates, the deal will also have to pass scrutiny in the bankruptcy courts and the Department of Justice (DOJ). The DOJ nixed a merger of US Airways with United Airlines six years ago as anti-competitive even though United and US Airways have far fewer overlapping routes than America West-Delta-US Airways. But this is a different era, and the DOJ might permit a consolidation if it believes this could help resuscitate a battered U.S. airline industry.


Ahhh, professionalism. A lost art.

Jetblaster

swaayze

Actually American jumped into the shenanigans with an agreement to take USAir's 757 and F100 aircraft, in conjunction with the TWA purchase. This was negotiated to appease some of the DOJ concerns and to compliment the Robert Johnson "DC Air" spinoff and to insure that AA would be a similar size player in the battle of the titans. So while not a "merger with USAirways" I suspect this is what he alludes to in his article.

jetblaster

Yeah, I remembered that; but, still, I think the guy was light on his research. Here is the way a post on another forum put it:

Uh... yeah... the only problem is that AA never tried to merge with USAirways in 2000. AMR announced a complex deal in 2001 in which they would buy and/or operate some USAirways stuff so that the United/USAirways merge would be approved, but the UAL/AAA deal was never approved, so the "DC Air" experiment never launched. In any case, regardless of why it was never consummated, no one could ever accurately characterize that arrangement as an AMR/AAA merger.

But the other part of the deal announced in January 2001 was approved.... you know.... the one where AMR bought the assets of TWA and immediately became the world's largest airline, a title I think they still hold to this day, along with the bonds and debt that went with the title.

"Enough has changed" my ass.

My view is that the AWA/AAA merge is the SECOND deal marking recent consolidation in the industry.... the first being the acquisition of TWA by AMR... an acquisition that was driven by the ego of a few men at AMR who never understood that size was not as important as what you did with it and thought the only way to compete with UAL/AAA merged was to buy TWA.

Jetblaster

B757200ER

I agree with most of that, Blaster. But the problem I have with the AA/US deal with 757s/F100s in '01 was this: APA, AA and ALPA proposed for a number of US pilots to come over with those assets with DOH seniority, while basically throwing the majority of TWA's pilots (after buying ALL TWA assets) on the bottom of the combined list.

How do you see that proposal?

aa73

Things that make you go "Hmmm." That's a good one - the only thing I can come up with is that, the APA deemed that a relatively few USAir pilots coming on to AA property with DOH would not be as harmful to the AA pilot group as 2300 TWA pilots with DOH. I only say this because I know how the APA thinks and works, doesn't necessarily reflect my own personal opinion.

B757200ER

The approximate number of US pilots coming to AA with assets was 550. All would have been senior to you, most likely.

Cleared4Tkeoff

My guesses are that they would've also been fenced onto that equipment and that AMR would've kept the 'assets' they were coming over with...