Mergers and Acquisitions Essay Example | Topics and Well Written Essays - 2500 words

Mergers and Acquisitions - Essay Example Before this governments believed this was a nascent industry that needed its protection. However, over the last three decades the industry has become highly competitive forcing many carriers to operate on thin margins. In fact, four of the six legacy carriers filed for Chapter 11 bankruptcy over the last ten years. American Airlines and Continental were the only two that did require bankruptcy protection (Harrison, 2010). US Airways is experiencing aggressive growth which is a consequence of its recent negotiations with other firms within the market. Specifically the Delta Slot Transaction whereby US Airways entered into a mutual asset purchase and sale agreement with Delta (Esterl, 2010). Pursuant to the agreement, US Airways would transfer to Delta certain assets related to flight operations at LaGuardia Airport in New York, consisting of 125 pairs of slots currently used to provide US Airways Express service at LaGuardia. Delta is expected to transfer to US Airways certain assets related to flight operations at Washington National Airport, including 42 pairs of slots, and the authority to serve Sao Paulo, Brazil and Tokyo, Japan. The agreement is structured as asset sales and is anticipated to be cash neutral to US Airways. The net benefit to the transaction is the restructuring of U.S Airways to focus its strategy and meet the growing demand. The agreement must be approved by the U.S.  Department of Justice, the DOT, the FAA and The Port Authority of New York and New Jersey. If approved, this transaction will significantly increase US Airways’ capacity in the Washington,  D.C. market and improve profitability(Gibbons, 2007). US Airways is experiencing slow growth coupled with an improving competitive market position. This means that US Airways is going through a phase of concentrated growth. The Frequent Traveler Program is a great method for the company to focus on their local hubs and create loyal consumers in those markets. This will undermine the low transfer cost and incentivize ticket purchasing through their company. This program helps generate a loyal consumer base and helps differentiate between airline services. Focusing on this program is key to brand development for US Airways. The Dividend Miles program credits passengers who fly on US Airways and Star Alliance carriers. Credits can be redeemed for travel on US Airways or other participating partner airlines, whereby US Airways assumes the fee. The incremental cost method is used to account for the portion of frequent traveler program liability related to mileage credits earned by Dividend Miles members. This creates an obligation to provide future travel when credits are redeemed (Gross, 2007). II. Company Strategy The possibility for a merger between US Airways and American Airlines have been stifled twice before, but renewed interest in the merger possibility has been created as a result of economic re-stabilization. But the two companies are currently in me rger talks that would make US Airways the second largest airline. The industry reported a $60 billion dollar loss since 2000 which has spurred interest in consolidation. Even with the dramatic declines in capacity by airlines collectively, in recent years, experts believe that there are too many airlines and a shortage in travelers. A merger could help both increase the earnings per share in a smaller timeframe than either company can accomplish alone. The industry is