The Merger of American Airlines and US Airways Harvard Case Solution & Analysis

The Merger of American Airlines and US Airways Case Solution 

INTRODUCTION

The American Airlines was founded in 1934. The company provides its services throughout the Latin America, North America, Europe, the Caribbean and Asia. Moreover, it operates 3400 flights daily on an average in fifty countries with 250 cities. The company also has approximately 900 network fleet aircraft. However, after the merger of American Airlines with US Airway, it provides its service to 150 countries in 800 destinations with 900 network flights on an average. Therefore, due to its efficient services, the company became the number one airline and courier service providing company in the world. In February 2013, the satirical publication and New York Times declared that both the companies,American Airlines and US Airways, decided to do a merger for the profitability of the enterprise. Both the companies believed that during the merger, the company would make the leading airline in the US.

After analyzing the case of the company, it is evaluated that the firm needs a partner that could help the company to improve its financial performance in the market and also put the company away from the bankruptcy. However, the main issue with the organization is that it isunaware of the risk of the merger that it decided to do with US Airways.

PROBLEM STATEMENT

The central problem that is highlighted, in this case, is that during 2011, American Airlines wasin financial crisis as it lost approximately $12 billion as compared to the year 2001. It is also expected that if both the companies go for the merger, then the US Airways would get 28% stake from the new project whereas, American Airways would get approximately 72% equity stake through the union, creditors and employees. However, when the American airlines was in the financial crisis, then at that time the judicial of the country supported the company and served the comment under the interest of American Airways. Moreover, it is also expectedthat if the price will increase without any natural synergies, then the transaction would not be equivalent to the company’s stakeholders.

ANALYSIS

The airline is one the leading airline service and mail courier service providing company in the world. The company uses the hub and spoke system to maximize the routes of the aircraft and generate maximum revenue from these transactions as well as to keepairplanes as full as feasible for leveraging fixed assets. Moreover, its local airline business is enormously viable. The business model of the American Airlines isbased on the five primary hubs, which include Los Angeles, Miami New York City, Chicago O'Hare and Dallas-Fort Worth. The company also uses its American Eagles for targeting the other segments of the outside market through cargos. Moreover, the competitors also offer similar services in the market. Southwest Airlines, Spirit Airlines, Alaska Airlines, Frontier Airlines, Jet Blue, Virgin America Airline and US Airways are the major competitors of the American Airlines.

During the time period of 2008 to 2011, the American airlines was facing financial crisis which negatively affected the financial position of the company. In the financial crisis, the company was the debtor for possession strategy for generating the finance for the company as well as for the survival of the enterprise. The United States bank ruptcy court provided relief to the company regarding the insurance provider, foreign vendors, taxing authorities and independent contractors. Moreover, as per the comparison of the financial data of the company, it is evaluated that the firm in 2012 earned a revenue of $24.8 billion with a loss of $1.9 and $19.9 billion revenue with $1.5 billion in 2010.

After analyzing the income of the company, it is evaluated that US Airways is the fifth largest airline service providing company in the United States as compared to the other competitor airlines. The airlines faced financial crisis several times due to the merger and acquisition of other countries................

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