DL + AA? No way....

OK, I've refrained from commenting on the AA bankruptcy, but a set of news reports came out today that have spurred me into the need to issue some armchair analysis....

In the Wall Street Journal and also the Atlanta Constitution Journal, news came out today indicating that both TPG and Delta were said to be evaluating bids for AA.

Time will tell, but in short, this is probably the most anti-competitive idea to float in the US airline industry since.... well, ever.

It would effectively allow the #1 and #2 airlines to carve up far too many markets to pass muster with the DOJ.

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First of all, this is probably way premature. AA still has the right to come up with their own plan, and probably will continue to do so for some time. The minimum timeframe a company can be given to come up with a Plan of Reorganization is 120 days, which will be coming up in February. But that's just the minimum. Given the complexity of the case, I'd be shocked if the court didn't grant extensions for AMR to come up with a plan. If fact, I'd fully expect that based on how full the docket is, AMR will likely get to run out the clock on the maximum 18 months allowed under the 2005 bankruptcy changes.

Only then will someone like TPG or DL be allowed to make a standalone bid.


Second, I had no doubt the guys in Atlanta would be looking at every option once AMR filed, including asset acquisitions like they did with Pan Am. I'd also been expecting to see TPG surface at some point. In fact, I'd commented to more than a few people over the two years prior to AA's filing that I half expected a pre-packaged filing with TPG's backing.


Until the clock truly runs out on the exclusivity period, it's all speculation, and fun speculation for some at that, unless of course, you work for AMR...

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Now... With all that and my usual disclaimers (link to the right) fully referenced....

I see a move by DL to be nothing more than just hype.

There are dozens of reasons I could go into... and I probably will look at a half-dozen or so over time, but the first one that jumps off the page is the resulting networks.

I see no possible scenario that allows a merger of AA into DL to pass muster with the DOJ, or to even be practical, absent a serious downsizing of AA's current operation. With the exception of AA's hubs at DFW and LAX, there's just way too much overlap.

Let's start in the lower right hand corner of the map... While ATL & MIA are distinct domestic markets, once you start looking at international coverage, there are very few markets from MIA where AA is that DL isn't also serving from ATL, and vice versa.

And that's just the Southeast. Let's move up to the Midwest. Same situation, but amplified.

As in "None more loud... our amps go up to 11."

DL already has significant hubs in MSP & DTW. Is it really practical to have a third hub almost smack dab in the middle of that? Are there any international locations served from DTW or MSP that aren't also served by AA from ORD?...

Think that's it? Nope. Let's float a couple hundred miles down the Mississippi from MSP.

Within a 360 mile radius of Peoria, IL (hardly the center of the US, but...), you'd have three major hubs, but also three former hubs which still have significant presence from AA or DL -- STL, CVG, and MEM.

Certainly, having four hubs and focus cities in former steamboat markets has to be enough, right?

Hardly. We haven't even addressed DC or NYC...

At JFK, clearly, a combined AA/DL would dwarf the competition, and account for some 25% of the available terminals, and probably a little bit more than that in terms of ASMs. It's the only move DL could make to truly be able to trump UA's EWR hub, but is that really necessary?

I'll admit, I've been wrong a few times before with my predictions, but on this one, I'm pretty certain that even the most liberal interpretation at the DOJ would negate most of the "benefits" you'd see from allowing the #1 carrier to absorb the #3 carrier...

At a minimum, I'd see the DOJ requiring AA to forfeit **all** of its slots at JFK, DCA, and LGA, and realistically, something would likely have to give to deal with all the overlap at MIA/ATL and ORD/DTW/MSP plus STL/CVG/MEM.

If DL's merger with NW is an indicator, that says massive layoffs and cutbacks in ORD, which also conveniently cedes that market to UA. Given MIA's expense vs. ATL, I can see a huge shift there as well, and yes, I'd expect UA to jump all over that, too.

I have to admit, that this is the only deal I've heard of which makes a US/AA deal sound, well, reasonable. And I've got serious doubts about that one as well, but that's an essay I've chosen to avoid.

As I said earlier, time will tell. And I suspect we're going to have a long time to wait to hear this one firm up.