Mergers

MERGERS

Strategy behind the Merger

In recent years, airline industry in the whole world has been facing intense competition (Wensveen, 2010). Many old airlines are facing difficulties in maintaining their market share ever since low cost carriers entered and secured a sizeable market. US Airways and American airlines are also two such airlines who have been recording a series of low profits. They struck a deal earlier this year to merge and the two airlines have been granted permission last week by the relevant authorities to operate as one single company (Forbes, 2013). We will try to evaluate the reasons behind this merger and predict if the decision to merge turns out to be successful for the new company.

Predicting the success of a merger is a complex process. One needs to keep many factors in mind. We will try to first assess the main reasons behind the merger before evaluating its success. As we know both the companies were struggling with earning profits, there was an increase in job insecurities amongst the employees. This compounded with increased pressure from various trade unions to either increase the profits or stuck a deal with some other company to increase profitability. So far from our predictions, the decision to merge seems to be the right choice. After the merger goes through, we can expect the financial statements of the post-merger company to show higher profits and revenues. The financial stability of the post-merger will be enhanced that will give increase job securities for the company. Reports also state that productivity of employees increase with increased levels of job security (Europa, 2007).

Another factor that motivated both the companies to merge was the prevalent competition in the market. Several low cost carriers have entered the market recently, giving more options for passengers. The new airlines also started operating for shorter routes, which was not previously feasible for larger airlines such as American Airlines and US Airways. New routes were also introduced by the new airlines giving them an increased market share. Following these developments, both the airlines thought it would be in their interest to merge. The merger will help them serving more routes as individual routs at present for both the companies will be combined. The increase in routes offerings will attract passengers to use Airmiles on a vast variety of routes rather than on a limited number. Any increase in passengers due to this will also increase revenues and profitability for the firm (Mazzeo, 2003).

Core competencies for both companies were also in different areas. This was because as each company was in competition with another and only focused on the areas in which they had comparative advantage. Managements of both the companies decided that it will be in the best of both the companies if they merge, as the core competencies of both the companies will be combined, most likely giving them an edge over many other competitors. The skills sets were also different for each company and the merger will let them use ...