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http://preview.reuters.com/2013/8/13/us ... s-merger-1
U.S. sues to block AMR-US Airways merger; stocks fall

WASHINGTON - The U.S. Justice Department sued on Tuesday to block the merger of American Airlines' parent company AMR Corp and US Airways Group Inc, saying the deal would hurt consumers by leading to higher fares and fees.

The $11 billion merger would create the world's largest airline, after four other major U.S. carriers combined in recent years, narrowing the field of large U.S. airlines.

The antitrust lawsuit, filed in U.S. District Court for the District of Columbia and joined by several states including Arizona and Texas, drew concern from industry experts and support from consumer advocates.

US Airways fell 8.4 percent at $17.23. American shares, which are thinly traded, were down 44.5 percent at $3.22.

This story is interesting to me, but I don't claim to know that much about the background, nor am I any kind of a stock market expert. I only know what I've been told by people who are not disinterested observers because of their own involvement. Because of my church's proximity to DFW Airport, a number of our members are employed by American Airlines or DFW Airport in some capacity or other. They tell me things. On the one hand, those of my acquaintances who are members of various AA unions seemed to be in opposition to the merger because it would severely negatively effect their retirement vesting. One friend told me he would lose 50% of his retirement in the merger. On the other hand, AA justified the merger as necessary to the company's survival. The market's response in the valuation of US Airway's and American's stock—particularly the 44.5% loss of value for AA—seems to indicate that there is some truth to the notion that AA's survival indeed depends on a merger.

I had no idea that the state of Texas was involved in the merger or in trying to prevent it until reading this article. I know that some of you know a lot more about this stuff than I do, and I'd be interested in what you think.

How does killing AA lead to more competition?

Let's put on our tinfoil hats for a minute....

AA is based WHERE?
Most of the jobs and tax revenues lost would impact what State?

I'm sure there's no chance this is political move... /tinfoilhat

RoyGBiv wrote:How does killing AA lead to more competition?

Let's put on our tinfoil hats for a minute....

AA is based WHERE?
Most of the jobs and tax revenues lost would impact what State?

I'm sure there's no chance this is political move... /tinfoilhat

Wait! you're suggesting that Greg Abbott, our attorney general (and next-governor hopeful), is opposing the merger of AA and US Air for some political reason? You're saying he wants AA to fold, and lose all the jobs they have inTexas (as well as around the world)?

Tear me off a piece of that tinfoil, cause I think my mind just went into overload!

Ok, Ok... I put on the tinfoil too soon...

BTW I met Barry Smitherman (current TX RR comish) last night. He wants to replace Abbott as AG... Liked Barry a bunch.

Scheduled passenger air transportation is one of the worst businesses ever. Warren Buffett calculated some years ago that all of the capital invested in scheduled passenger air transport companies, since the Wright Brothers flew, has been lost. IOW, not only is there no return ON investment, there is no return OF investment!

“If a capitalist had been present at Kitty Hawk back in the early 1900s, he should have shot Orville Wright. He would have saved his progeny money. But seriously, the airline business has been extraordinary. It has eaten up capital over the past century like almost no other business because people seem to keep coming back to it and putting fresh money in. You’ve got huge fixed costs, you’ve got strong labor unions and you’ve got commodity pricing. That is not a great recipe for success. I have an 800 (free call) number now that I call if I get the urge to buy an airline stock. I call at two in the morning and I say: ‘My name is Warren and I’m an aeroholic.’ And then they talk me down.”

2002 interview with the London newspaper The Telegraph


The business has terrible economic characteristics, very heavy capital requirements, hideous fixed costs and as Buffett notes, commodity pricing. It has to be a management nightmare, re-jiggering all the flight schedules, all the crews, every time it snows somewhere, or something else goes wrong.

Let the government handle it. They have a lot of practice when it comes to throwing money at horrible business models. I'm sure they'll do better this time.

I don't see this situation as being any different from GM. The government wants to be involved to gain control. If the merger goes through, that control opportunity is lost. If AA goes bankrupt (again), the Feds can step in to save it and funnel more taxpayer dollars to the Unions.

The Feds are heading for a "single payer" healthcare system. I maintain that they are headed for a "single" controlled economy, too. Both sides of the isle are involved, just like the immigration matter.

Does anyone have any more tin foil, I'm running low.

JALLEN wrote:Scheduled passenger air transportation is one of the worst businesses ever. Warren Buffett calculated some years ago that all of the capital invested in scheduled passenger air transport companies, since the Wright Brothers flew, has been lost. IOW, not only is there no return ON investment, there is no return OF investment!

If they took away the government subsidies and let the free market do what it does best, it might be different, but the airline industry has been feeding at the corporate welfare trough for so long, they're like pigeons in a park. Unable to survive in the wild.

Heard on the radio today that one of the main reasons the feds and the states are objecting is that, together, AA/US Air would control over 70% of the takeoff/landing slots at Reagan National, as well as at a few more places. Plus, the combined giant has indicated it's desire to quit service in some of the smaller markets (in Texas, specifically Bryan/College Station, Waco, and Abilene. Would hate to have to drive to DFW or Houston if I lived in CenTex.

Dori wrote:

JALLEN wrote:Scheduled passenger air transportation is one of the worst businesses ever. Warren Buffett calculated some years ago that all of the capital invested in scheduled passenger air transport companies, since the Wright Brothers flew, has been lost. IOW, not only is there no return ON investment, there is no return OF investment!

If they took away the government subsidies and let the free market do what it does best, it might be different, but the airline industry has been feeding at the corporate welfare trough for so long, they're like pigeons in a park. Unable to survive in the wild.

The airlines have been unable to survive even with the government subsidies, given the thorough regulation, the predominance of unions, the massive capital requirements and the nature of the marketplace. Who can remember Pan Am, Eastern, Western, Northwest, Braniff, PSA, Trans-Texas, and a host of others. Like I mentioned, Buffett calculated that all of the capital invested since the Wright Brothers in scheduled passenger air transport has been lost, even with subsidies of various sorts, carrying mail, etc.

Another Buffett quote seems apropos: "When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is usually the reputation of the business that remains intact."