American appears ripe for acquisition

— -- As American Airlines seeks to slash jobs and pensions to help steer its way through bankruptcy reorganization, rival carriers are eyeing it, looking at whether they should buy the struggling airline.

US Airways, spurned in its quest for a major partner at least three times in the last dozen years, has said it's interested in exploring its options with American, which became the last of the nation's major carriers to file for bankruptcy protection when it did so in November.

Delta Air Lines, already the world's second-biggest carrier, has retained Blackstone Group, an investment and advisory firm, to watch American as it reorganizes under bankruptcy court protection.

But any proposal to buy American, invest in it or scoop up its assets is probably months away, industry and bankruptcy experts say, as American is given time to hammer out its own restructuring plan. A marriage of the U.S.' third-largest carrier with another airline could have a series of hurdles to overcome, from labor problems to antitrust concerns about what could be the last megamerger in an increasingly consolidated U.S. airline industry.

In the last four years, Delta took over Northwest, United and Continental have merged, and Southwest bought AirTran.

"You have to look at these mergers on a variety of levels," says Henry Harteveldt, airline and travel analyst with the Atmosphere Research Group, from the effect on ticket prices and shareholders to "the reduced competition, and impact on employees and communities."

The disappearance of another stand-alone airline could mean higher fares, reduced service to some markets, and a steeper climb for smaller carriers trying to compete with their jumbo-size peers, says George Hobica, of Airfarewatchdog.com.

"In any age of megamergers, where does that leave niche airlines such as …Virgin America, Frontier, Alaska and Hawaiian?" Hobica asks. "Can they survive as agile mice running around in a jungle full of 800-pound gorillas?"

American says it's not looking for a buyer or a partner, but aiming to emerge from the bankruptcy process independent and intact.

"You have likely read or heard reports that there are those who wish to shrink our airline, close hubs or acquire our company or assets," Tom Horton, American's CEO, said in a letter to employees on Feb. 1. "Still others may favor a break-up of American. I do not believe any of these outcomes are in the best interests of American, our people or our stakeholders.

"The best way for us to assure that we are in control of our own future is to make the necessary changes, complete our restructuring quickly and continue working hard to position American as a world-class competitor," Horton said.

Strategies to survive

The airline, which has presented its restructuring plan to employees, seeks to cut roughly 13,000 jobs, end the company's pension plans and outsource some aircraft maintenance to help achieve $3 billion in annual savings and improved revenue.

Proposed cuts drew sharp responses from airline unions, with whom American has had contentious relationships, as well as the Pension Benefit Guaranty Corporation (PBGC), the federal agency that would take over administration and payment of pension benefits if American terminates its plans.