US And Foreign Mergers Held Back By US Ownership Laws
With excess capacity and increased competition already taking a
toll on air carriers, industry experts agree global economic
conditions are conducive to more airline mergers in the coming
year.
"As we are in a recession that is becoming worse, there is going
to be an impact on air travel," said Bruce Zirinsky, a bankruptcy
attorney at Cadwalader Wickersham & Taft. "There is already
shrinking demand and if that continues, it is fair to say we will
see more consolidation."
This year's merger of Delta Air Lines and Northwest Airlines
unseated American Airlines from largest to third largest US
carrier, which is already facing more competition due to this
year's alliance between UAL Corp's United Airlines and Continental
Airlines.
"Some, like (American Airlines parent) AMR Corp, face the
prospect of going from the No. 1 to the No. 3 network in the US,
with the loss of interest by high-paying corporate accounts that
goes with that," said airline consultant Robert Mann.
Overseas, mergers and reports of mergers have been non-stop.
Virgin Atlantic is negotiating with Lufthansa for acquisition of
British carrier bmi. Lufthansa recently purchased Austrian
Airlines. Ryanair Holdings has made a bid for Aer Lingus Group.
Qantas and British Airways are negotiating, with parallel talks
between Spain's Iberia and British Airways. Should the three
carriers merge, it would become the world's largest airline.
The need to increase cash flow and decrease capacity may bring
US carriers back to the discussion table in 2009, but frozen credit
markets to finance deals may prevent mergers from happening,
Reuters reported.
"Following a year of operating weakness characterized by extreme
volatility in jet fuel costs and a steady erosion of air travel
demand in a deepening recession, US airlines face another year of
intense cash flow uncertainty in 2009," Fitch Ratings analyst Bill
Warlick said. "Attention has now shifted to the management of an
increasingly precarious supply-demand relationship that will force
airlines to once again monitor scheduled capacity plans
closely."
Presently restricting foreign ownership of US airlines to 25
percent or less of voting stock, US laws are a stumbling block to
mergers with foreign carriers. Despite strong political opposition
to foreign control of US carriers, numerous industry experts and
analysts predict some easing of restrictions in 2009.
"I think you will see a reduction in foreign ownership
restrictions that will allow for greater co-operation between US
and foreign carriers and help sustain competitiveness," Zirinsky
said. "It could open up the doors for mergers of US and foreign
airlines."
"This is a global network business with big economies of scale,
yet no airline has even a 25 percent share of ... total revenues,"
US Airways Chief Executive Doug Parker said. "And we have six
airlines with shares of about 10 percent or more. So it's highly
fragmented. We have made some strides here and indeed some pretty
important strides over this last cycle. But more is needed."
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