Posted Thursday, Jul. 12, 2012
By Mitchell Schnurman
mschnurman@star-telegram
Tom Horton has finally agreed to get on with it already, and let merger talks proceed at American Airlines. But has American’s CEO become a true believer?
He's spent months, and precious credibility, arguing that American should develop a stand-alone plan and emerge from bankruptcy – and then look at merger options. Since the Chapter 11 filing last November, he seemed reluctant to explore a hook-up, maybe because US Airways’ Doug Parker was forcing the issue.
This week, Horton told employees that "it now makes sense" to move forward. American has performed better for several months and is closer to reaching new labor agreements (thanks to pressure from the bankruptcy judge).
But Horton went a few steps further, making it sound as if he were a big fan of mergers.
"For many years, I have publicly been a proponent of consolidation as one path to a healthier US airline industry,"
Horton wrote in a letter to employees. "We have assessed many possible combinations in the past, including, of course, an acquisition of US Airways."
Which begs the question: Why didn’t he do something?
In the past decade, competitors combined their operations to build larger, more profitable networks. But Horton and his predecessor, Gerard Arpey, never pulled the trigger on a deal after buying bankrupt TWA in 2001.
Horton was point man on TWA, and it was a financial mistake. American picked up valuable assets at a fire-sale price, but it bulked up on capacity just before 9-11, and the industry would soon shrink permanently.
American also got a load of labor trouble with its Reno Air purchase, announced in late 1998.
Those two failures hung over the company while the rest of the industry was looking for new partners. In 2008, Arpey and Horton met with union leaders to gauge their support for a merger but got a cool reception, according to
Star-Telegram reports at the time.
“Look, the history of mergers at American Airlines hasn't been stellar,” said a union leader for the pilots.
American had plenty of reasons to not do a deal. Some asking prices were too high (Northwest). Justice Department objections would have delayed and maybe derailed the most promising combinations (Continental). And American’s toxic labor relations ensured years of wrangling over salaries, work rules and seniority.
But somehow the other guys worked through it – helped greatly by the fact that they had already used bankruptcy to get costs and contracts in line.
American is now poised to get new labor contracts, so Horton may have the tools to turn more aggressive. It’s just hard to know whether his heart’s in it.
He doesn’t seem enamored with US Airways’ network, given that he called out the airline in his letter – saying, in effect, "We passed." So if the answer is to combine American and US Air, Parker rightly said that he should be driving the train.
"You got to want the people that think it's a good idea to do it,"
Parker said last month.
Horton could trump that with a better combination.
Team up with JetBlue and Alaska Airlines, and American could strengthen weaknesses in the Northeast and the West Coast.
But it's tough to negotiate an acquisition during bankruptcy, and targets are reluctant to be put in play in such a public manner. And if the deal falls apart, it’s tough to remain independent.
Horton left American in 2002 and helped engineer the sale of AT&T to Southwestern Bell. Four years later, he returned to American, in part, to lead the way on acquisitions.
It’s well-past time for him to deliver. Or someone else will.
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