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Saturday, December 27, 2008

BA and Qantas merger talks fail

British Airways and Qantas today said they had failed to reach agreement on a potential merger.

The pair revealed earlier this month that they were in discussions about joining forces through a dual-listed company structure.

But in a statement today, BA and Qantas said it had not been possible to come to an agreement over the key terms of the merger. They did not provide further details.

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Monday, August 11, 2008

BA will give up hundreds of U.S. flights to forge American Airlines pact

British Airways is preparing to surrender its right to hundreds of transatlantic flights in an attempt to win the backing of US authorities for an alliance with American Airlines.

The slots are worth tens of millions of pounds, but BA chief executive Willie Walsh sees it as a price worth paying to secure a three-way tie-up with AA and Spain's Iberia.

The alliance would give the joint venture huge dominance in transatlantic flights.

It would have 46 per cent of all the slots and handle 62 per cent of all transatlantic passengers.

On one route - Heathrow to Houston - the combined group would control 100 per cent of all scheduled flights.

BA will meet US Department of Justice officials early this week and offer to give up the flights.

In return, the airline hopes to win immunity from prosecution under US anti-monopoly laws, allowing it to press ahead with its link-up without the risk of a lengthy legal battle.

When BA last tried a deal with AA in 2002, it was told it would have to surrender 16 flights a day to win anti-trust immunity.

That figure was deemed too high at the time, but this time round BA hopes to convince US authorities a much lower figure will satisfy their concerns.

BA is planning a full merger with Iberia and wants a deal to share costs and revenues with AA.

Walsh believes such a three-way venture is the only way airlines will be able to survive at a time of soaring fuel costs and falling demand.

He is shuttling between London and Washington to lay the groundwork for a successful application. This will be the third attempt by BA to link up with AA.

BA will run into tough opposition from rival Virgin Atlantic, which has pledged a full-blown campaign of opposition.

Virgin Atlantic chief executive Steve Ridgway said: "This alliance would give them a stranglehold on Heathrow-US flights. BA and AA will not face enough competition on their huge network to stop them raising prices."

The open skies agreement signed last year between Britain and the US means the domination of the transatlantic route by BA, American, Virgin and United has gone.

A further six US airlines have since been allowed to land at Heathrow.

Even more significant from BA's point of view is the fact that its rivals - Northwest Airlines, Delta Air Lines, Air France, KLM and Alitalia - have all won anti-trust immunity.

Faced by such a huge challenge Virgin is looking to merge with another airline. Its first choice would be to buy BMI, which has 11 per cent of all the slots at Heathrow.


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Friday, July 04, 2008

BA to seek clearance for AA and Iberia merger

British Airways is said to be close to seeking clearance from competition authorities for a three-way operational merger with American Airlines (AA) and Iberia.

The deal would allow the companies to combine nearly all aspects of their operations, including sales, purchasing and marketing, leading to lower costs and greater economies of scale. Legal sources in the United States said that a submission to the US Department of Transport was expected as soon as next week.

The operational partnership may also provide a foundation for a full merger of the carriers should foreign ownership rules in the United States and Spain change. BA said two months ago that it was in talks with AA and Continental, another American carrier, about creating an alliance, but Continental has since walked away.

BA and AA have continued their discussions and are believed to have invited Iberia - in which BA has a 13 per cent stake - to be the third member. BA said last night that its talks with AA were continuing but a decision had yet to be made.

If BA and AA do seek regulatory approval to merge their operations, it would be their third attempt, having been blocked by regulators in 1998 and 2001. The authorities in Britain and America were concerned that the

two carriers would have a dominant position on many North Atlantic routes and demanded that the airlines sell Heathrow slots to reduce their traffic.

However, sources familiar with BA's discussions said that the airline was more optimistic of gaining approval this time because of the liberalisation of air travel rules between Europe and the US. In addition, the dire state of the airline sector, which is striving to cope with high fuel prices, may force regulators to accept the deal.

AA lost $328 million (£164.7 million)and Iberia €28.3 million (£22.5 million) in the first quarter of this year. BA has given warning that it may struggle to stay profitable this year.

An analyst said: "There is a lot of pressure on BA and AA to do this deal and cut costs. It's inevitable." Another added: "Including Iberia makes sense, as it would give the alliance a strong position across both the North and South Atlantic."

Meanwhile, BA said yesterday that it had bought L'Avion, a French business-class only airline, for £54 million. L'Avion is the last of the survivors of the rush two years ago to launch all-business-class transatlantic services. Silverjet, MaxJet and Eos have all gone out of business.

L'Avion will be merged with BA's new OpenSkies service, which flies from Paris to New York. The purchase price includes L'Avion's £26million in cash and two Boeing 757 aircraft.


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Sunday, June 01, 2008

United Airlines, US Airways drop merger talks

United Airlines and US Airways said Friday they have stopped discussing a possible merger and will go it alone, doing business in an onerous economy with crude oil in the $130-a-barrel range.

The nation's second and fifth largest airlines began talks in late April, after Continental Airlines had rejected United Airlines' merger overtures. The three airlines had been weighing consolidation as an option since mid April, when Delta Air Lines and Northwest Airlines proposed a deal that would create the world's largest carrier.

Glenn Tilton, the chief executive of United Airlines, and his counterpart at US Airways, Doug Parker, both wrote statements to their employees on Friday saying consolidation will not take place "at this time."

Tilton said the deal was dropped "due to issues that could significantly dilute benefits from a transaction."

"The U.S. (airline) industry is facing a $20 billion increase in fuel (prices), and United, at current prices, is looking at a $3.5 billion increase over last year," Tilton wrote. "It's clear that the status quo is not sustainable. The magnitude of the challenge the industry faces demands unprecedented change."

United is the dominant carrier at San Francisco International Airport with 48 percent of the flights, and employs 10,000 people in the Bay Area.

US Airways' Parker wrote, "It is simply unlikely that anything will happen in 2008 as our industry continues to struggle with how to function in a world" with crude oil costing $130 a barrel.

Both executives remain advocates of consolidation in the airline industry, and thus left a door open.

They gave no reason for breaking off talks, but analysts believe a merger would be too problematic. The announcement almost certainly means there will not be another attempt by major airlines to merge before year's end.

There is a perception that the Justice Department of the Republican administration of President Bush would be more accommodating to a merger than would the department in place during a Democratic administration. Even so, Bush was in office in July 2001, when the Justice Department said it would oppose the first United-US Airways merger attempt, saying it created a near-monopoly on approximately 30 routes.

Henry Harteveldt, the airline analyst at Forrester Research in San Francisco, said Friday that he thinks it is a good thing for United to be pursuing independence for now. "A merger with US Airways would not have solved United Airlines' problems. It would not bring much to the table that United cannot do on its own," said Harteveldt.

"The products and the cultures are so different that had the two airlines merged, it would have been extremely problematic and potentially cost the airline business as corporate clients and others avoided traveling on the airline until things got sorted out," he said.

Harteveldt said United now "has to work on ways to grow its revenue and develop ways of serving more customers who are willing to pay the prices United will have to charge to earn a profit."

U.S. passenger and cargo airlines spent $16.4 billion on fuel in 2000 and $41.2 billion in 2007, and will spend a projected $61.2 billion in 2008, according to the Air Transport Association in Washington, D.C., representing the major carriers.

Six carriers have gone out of business since December: MAXjet, Big Sky, Aloha, ATA, Skybus and Eos. A seventh, Champion, quit business Friday and an eighth, Air Midwest, is to fold June 30. A ninth, Frontier Airlines, filed for bankruptcy protection April 11 but continues operating.

A British all-business airline, Silverjet, that served Newark, N.J., ceased flying Friday as well.


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Return flight to bankruptcy possible for U.S. airlines

ATLANTA - Airlines are cutting U.S. flights, shedding employees, putting off plane orders and even talking about combinations.

But with cash bleeding fast, fuel prices high and credit tight, nothing they do may be able to stop several major airlines' return flight toward bankruptcy, and possibly liquidation.

Unlike when four of the six legacy carriers filed for bankruptcy protection between 2002 and 2005, airlines facing bankruptcy in this climate may find it tougher to reorganize because of tight credit markets and they have fewer unencumbered assets to use as collateral for loans.

"It may be Darwin's law of the fittest. If one of the carriers goes into bankruptcy and liquidated, it would take a lot of seats out of the market and other carriers would benefit," Calyon Securities airline analyst Ray Neidl said.

A handful of small carriers in recent months have filed for bankruptcy protection or gone out of business altogether.

With losses piling up for most of the major airlines, maintaining a strong cash position is important to avoid the same fate.

Spiralling fuel costs and limited means to trim other costs quickly makes that a tricky proposition.

"Unlike 2002, 2003, 2004, when it was largely a revenue problem that drove them into distress, this is largely a fuel price problem," said Fitch Ratings analyst Bill Warlick. "You could argue that the risk associated with fuel price spikes is largely uncontrollable in contrast to the revenue problem post 9/11, which was addressed through a variety of measures such as cutting costs."

Several of the carriers used their first trip through bankruptcy protection to wipe away debt, resize their fleets and terminate employee pensions.

"There are fewer opportunities to restructure now that the initial work is done," Warlick said.

American Airlines, the largest U.S. carrier, teetered on the verge of bankruptcy before winning employee concessions in 2003. Because of high pension and debt obligations, as well as the hefty price of fuel, the unit of Fort Worth, Texas-based AMR Corp. is again facing the possibility of a future cash crunch.

It had US$4.5 billion in unrestricted cash at the end of March, but Neidl projects that AMR could have a negative cash balance by the end of 2009 if oil prices remain at the current level of roughly $130 a barrel. Covenants on some of American's debt require the airline to maintain at least $1.25 billion in unrestricted cash at the end of each quarter through at least the middle of next year.

At the current fuel price level, Chicago-based UAL Corp., parent of United Airlines, and Tempe, Ariz.-based US Airways Group Inc., both of which have had trips through Chapter 11, also face the potential for precarious cash positions by the end of next year, according to Neidl's projections. Fitch Ratings said Thursday that US Airways would face a growing risk of violating one of its debt covenants if adverse fuel trends persist through the remainder of this year.

The debt covenant issue wouldn't necessarily force a bankruptcy filing, as airlines could re-negotiate debt agreements with lenders or sell assets to pay off debt. Neidl believes airlines would take drastic actions before the end of 2009 if current fuel trends continue.

Having few assets that aren't already being used as collateral on existing loans and the tight credit markets could make it difficult for US Airways, for instance, to raise financing to allow it to reorganize in bankruptcy if it had to file for the third time since 2002, Warlick said, adding that under those circumstances liquidation could result.

US Airways declined to make an executive available to discuss the airline's financial situation.

Atlanta based Delta Air Lines Inc. and Eagan, Minn. based Northwest Airlines Corp., which are seeking to combine, had a combined total of $5.8 billion in unrestricted cash at the end of March, but at current fuel prices Neidl projects that could dwindle significantly by the end of next year. Delta also has said it expects to incur $1 billion in one-time integration costs from its acquisition of Northwest. Both Delta and Northwest exited Chapter 11 bankruptcy protection just last year.

Neidl's cash projections include unrestricted cash and short term investments, but exclude auction-rate securities.

The airlines are furiously trying to remove domestic flights from the air to reduce costs. At least two have announced plans to cut U.S. capacity by double digit percentages and trim thousands of jobs. Others are putting off buying certain new planes.

The price of oil has doubled in the last year. But fare increases have fallen well short of keeping pace with the price of fuel. As their finances have been buffeted, stocks of most major airlines have plummeted by double digit percentages over the last year.

"Obviously, there are things that are outside of our control," said Beverly Goulet, American's vice-president of corporate development and treasurer. "The first thing that comes to mind is the price of jet fuel."

But Goulet said American, by cutting U.S. capacity, imposing new fees on travellers and taking other measures, has been working hard to position itself to remain viable in the current economic and fuel environment. The airline currently isn't considering bankruptcy.

"It's an interesting reflection on perceptions out there to hear people talk about the benefit of walking away from obligations," Goulet said. "Would it be easy to walk away from debt? Yes. But as a manager of this business, as people who take on obligations to those stakeholders, we don't think that's the appropriate way to think about those kinds of tactics."

Goulet said the airline industry will have to change in the face of persistently high fuel prices, and she insisted American doesn't plan to give up.

Neidl said in a recent research note that mergers, which are supposed to make the industry more efficient, may not work in the current environment because there is a large cash outlay up front and high execution risk. He believes the current crisis, which he described as the biggest challenge the industry has ever faced, may serve to cool the merger frenzy.

For their part, Delta and Northwest insist they are pushing ahead with their plans to combine in a stock swap deal that would create the world's largest carrier, and officials dismissed speculation by some analysts that Delta could possibly walk away from the deal. United and US Airways had been discussing a possible combination of their own, but on Friday the companies said there won't be an agreement "at this time."


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Saturday, May 17, 2008

Antitrust review is the next step for Delta and NWA

In a Capitol Hill hearing Wednesday, friends and foes of a Delta-Northwest merger continued to press their cases. Experts say the Justice Department is unlikely to block the deal.

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Sunday, April 27, 2008

American Airlines in talks with Continental, US Air

American Airlines has had early stage merger talks with US Airways and is in advanced talks for an alliance with Continental Airlines, sources briefed on the situation said on Friday.

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Wednesday, April 16, 2008

Delta and Northwest agree on merger

Delta Air Lines Inc. and Northwest Airlines Corporation announced yesterday (14 April) an agreement in which the two carriers will combine in an all-stock transaction with a combined enterprise value of $17.7 billion, creating America's premier global airline.

The new airline, which will be called Delta, will provide employees with greater job security, an equity stake in the combined airline, and a more stable platform for future growth in the face of significant economic pressures from rising fuel costs and intense competition as the two carriers said.


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Friday, April 04, 2008

Airlines Vueling, Clickair to start merger talks

Spanish low cost carrier Vueling said on Tuesday it had agreed to start merger talks with rival Clickair.

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Friday, December 21, 2007

Two Indian airlines announce merger to cut costs

India's biggest discount carrier, Deccan, will merge with liquor baron Vijay Mallya's upmarket Kingfisher Airlines to create the nation's biggest domestic airline, officials said.

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Friday, November 23, 2007

United Airlines looking for a merger: report

UAL Corp, parent of the No. 2 U.S. carrier United Airlines, is keen for a possible merger, according to an article in the Dec 3 edition of BusinessWeek that cited industry experts.


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Thursday, November 15, 2007

Delta, United talk of merger

UAL Corp's United Airlines and Delta Air Lines Inc have been discussing a combination between the United States' second and third largest carriers that would keep the United name and the corporate headquarters in Chicago.

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Wednesday, September 19, 2007

Air France-KLM eyes carriers

Air France-KLM, the European airline, is studying potential merger moves with either Alitalia or Iberia.

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Wednesday, August 29, 2007

Air China to look at merger with China Southern

Air China, the world's largest carrier by market value, will consider a merger with China Southern Airlines to fend off Singapore Airlines and other overseas carriers adding flights into the country.

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Monday, August 27, 2007

Indian airline merger becomes a reality

India last week cleared the final legal hurdle to merge state-owned airlines Air India and Indian Airlines into a single company called National Aviation Company of India Limited (NACIL). (page not found)

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Tuesday, March 06, 2007

Air-India merger may end reign of maharaja mascot

The future of Air-India's iconic mascot, the Maharaja, is in jeopardy with the planned merger between India's two state run airlines. (page not found)

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Thursday, February 22, 2007

Decks cleared for Air India-Indian Airlines merger

The merging of Air India and Indian Airlines sets the stage for the creation of a mega airline that could take on the likes of Singapore Airlines and Emirates.

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Tuesday, December 19, 2006

Delta Air Lines Rejects US Airways' Hostile Takeover

Delta Air Lines has rejected a hostile merger bid from US Airways, announcing plans to exit bankruptcy on its own.

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