"The addition of approximately 300 aircraft and 200 gates across the country allows us to achieve a level of growth that would otherwise take our company literally years to achieve."
A Kinght in Flying Armor?
The decision by TWA to seek a white knight in American comes after the airline started the fourth quarter with just $157 million in cash.
AMR Corp. executives said the planned purchase would "modestly" detract from earnings in the first year after closing but add to earnings after that. By 2004 or 2005 earnings will be 23 or 24 percent higher than they would otherwise have been, Tom Horton, chief financial officer of American Airlines parent AMR, said in a conference with analysts.
"I think everybody on our management team is committed" to keeping the initial earnings hit to a minimum, Horton said. The company is assuming the deals close at the end of the first quarter, "which is probably a little aggressive," Horton said.
Consumer groups criticized airline consolidation immediately after news of American's planned deals became public earlier this week, and the American Society of Travel Agents said the result would be higher prices and lower customer service.
But MONEYScope editor Andy Serwer says the airline industry has to act. "Airline fares have not kept pace with inflation since 1978," he said on Good Morning America this morning, "so flying today is actually a better deal than it was over 20 years ago."
"The only really profitable company out there is Southwest and these companies have to do something to improve their businesses," Serwer said.
Analysts and airline industry officials said American's unusually bold moves could prompt more mergers.
"I think the carrier that will be under the most pressure [to expand through acquisition] is Delta," said William Franke, chairman and chief executive of Phoenix-based America West Airlines. "If it does nothing, it'll be significantly smaller than the other two."
Labor Trouble Ahead?
American could face labor trouble digesting the large acquisitions. Pilots held a costly sickout to protest the carrier's purchase of much-smaller Reno Air in 1998.
The airline must integrate TWA and US Airways pilots on American's seniority list, which can threaten the carrier's current pilots. Seniority determines pilots' schedules and whether they fly as captain, co-captain or navigator.
"If you take on an airline the size of TWA or any part of US Airways, there's some shuffling of the seniority list — there are only so many seats on the left side of the cockpit" — the captain's seat, said Jim Philpot, a spokesman for the Allied Pilots Association, which represents American's 10,700 pilots.
Philpot said the pilots wouldn't automatically oppose the TWA and US Airways deals.
"If our corporation can be improved by this acquisition, then it's a good thing," he said.
The Associated Press and Reuters contributed to this report.