American Airlines – US Airways Merger

Case Code: BSTR493 Case Length: 16 Pages Period: 1929-2016 Pub Date: 2016 Teaching Note: Available

Price: Rs.500 Organization: American, US Airways Industry: Airline Countries: US Themes: -

Abstract Case Intro 1 Case Intro 2 Excerpts

Abstract

The case discusses the merger of the US-based American Airlines (American) and US Airways. The merger, announced in 2013, took two more years for complete integration. The new entity retained the name American Airlines and emerged as the largest airline company in the world. The company reported a net profit of US$ 1.7 billion in the third quarter of 2015, beating the predictions of analysts. Experts were skeptical about the outcomes of the merger being favorable. Both American and US Airways, in the course of their journeys, had undergone financial bankruptcy and were badly hit by the terror attacks in 2001. While American was struggling with labor union turbulence, US Airways set a strategy to merge with it. Although initially there was resistance from Thomas W. Horton, CEO of American, the major labor unions forced the company into the deal.

US Airways and AMR Corporation (the parent company of American) announced the merger of the two airlines in a US$ 11 billion deal. The merged airline was expected to combine more than 950 planes flying to 339 destinations across 50 countries. The biggest challenge facing the merged airline was integrating the finances, operations, and cultures of the two airlines. The transition was well planned to avoid any sort of chaos. The integration process had many complex elements like combining frequent-flier programs, obtaining a single operating certificate from the Federal Aviation Administration (FAA), and merging the computer reservation systems.

There were a few operational differences between the two airlines to be addressed post merger. Although US Airways and American were operating under a combined name, they varied in terms of on time performance and culture. The case discusses in detail how both the airlines were merged and the steps taken by the management to ensure a smooth transition. The case ends with a discussion on the future projection of the combined airline.

Issues

The case is structured to achieve the following teaching objectives

• Discuss the concept of mergers in the context of business strategy
• Analyze the motives behind mergers
• Examine the post-merger integration challenges
• Analyze merger as a strategy to face competition
• Understand merger as a growth strategy
• Study the problems a merger can bring with it

Contents

Introduction
Background Note
On the Road to a Mega Merger
Industry Response
The Integration
Looking Ahead
Exhibits

Keywords

Airlines, Bankruptcy, Merger, Synergies, Post Merger Challenges, American Airlines, US Airways, Organizations merger, Strategy,M&A strategy, Post merger integration

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