US Airways and American Airlines Have a Lot of Friends, Part 1

US Airways and American Airlines Have a Lot of Friends, Part 1

The merger battle between the Department of Justice and two airlines, US Airways and American Airlines parent company AMR , is set to be a large scale legal battle with plenty of resources on both sides. But numerous stakeholders are moving in to voice their support for the airline merger. Here we will break down the influences and reasons for the support of each stakeholder or stakeholder group.

Labor unions
Management and labor often do not see eye to eye, but both sides are in agreement on their support of the merger between US Airways and AMR. And the unions have made sure their voices are heard. Mass rallies have been held, letters written, and the Transport Workers Union has been allowed to file a brief on behalf of the airlines.

The motivations for union support are clear in this case. A merger would mean a pay bump for many workers, a larger airline would provide increased job security, and one union claims the merger would save 3,500 jobs.

The support of labor removes another point of contention that could have distracted the airline and the DOJ from settling the merger. In contrast, the merger between Delta Air Lines and Northwest Airlines had the initial support of the Delta pilots union, but raised concerns with the Northwest pilots union. In the end, the merger was completed anyway, but the labor issues formed an unpleasant situation of uncertainty for a time.

Having labor's support helps from a political aspect, and serves to create additional pressure on the DOJ to settle the case rather than take a firm stance against the merger. But labor's support does not address the plaintiff's concerns over a lack of competition -- something not as critical to labor, which may actually benefit from higher fares, as they could lead to higher profits and higher wages.

Mayors and airports
Several mayors have signed on in support of the merger between the airlines believing an integrated airline would provide better flight networks for their respective cities. The mayors come from the hubs of each airline, showing the support of officials closely connected to major operations.

Of particular note is the support of the mayors of Phoenix, Arizona and Philadelphia, Pennsylvania. These two cities have often been seen as the most at risk of seeing flights cut in the event of a merger. The support of these mayors gives the impression that local officials believe these fears to be overstated.

Following the endorsement by the mayors, many US Airways and American Airlines hub airports noted their support for the merger. Included in this group are the Phoenix Sky Harbor International Airport, and the Philadelphia International Airport -- again, the two airports where flight cuts would be seen as most likely to hit. But instead of fearing such cuts, these airports are noting a bright future under a merged airline.

The support of these parties helps to strengthen the argument of the airlines that the merger will not create massive route cuts or restrict competition. Clearly, neither the mayors, nor the airports themselves, would support a merger they expect to shrink operations, or drive up the cost of travel to the cities.

More friends in part 2
The support of labor, and the mayors and airports of critical cities, is helping to put public pressure on the DOJ to settle the lawsuit rather than take it to trial. While the support of labor is beneficial for political purposes and keeping the pro-merger side of the story in the news, the support of the mayors and airports is likely to play a greater role in influencing the DOJ than labor, because the DOJ examines these mergers from a competition oriented point of view.

But these are only some of the stakeholders supporting the merger. In Part 2, we will look at what the support of other stakeholders means for this industry-shaping merger.

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Alexander MacLennan owns shares of Delta Air Lines and AMR and has the following options: long January 2015 $22 calls on Delta Air Lines, long January 2015 $25 calls on Delta Air Lines, long January 2015 $30 calls on Delta Air Lines, and long January 2015 $17 calls on US Airways Group. This article is not an endorsement to buy or sell any security and does not constitute professional investment advice. Always do your own due diligence before buying or selling any security. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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