The Sky Is Falling ( ! / ? )

Last week, months of persistent rumors were given credibility when one of the major US airlines publicly announced that they were holding merger talks with several other major airlines, including NewCo's parent company. This was mere confirmation of what had been spread as gospel truth by industry and general media for months despite firm denials by numerous executives that any such thing was in the works. Therefore, the announcement wasn't much of a surprise - after all, who believes a thing CEOs say these days? In a hundred years, I suspect the epithet "CEO" will be used as interchangeably with "liar" as "Benedict Arnold" is now with "traitor."

That said, a public announcement before God, the SEC, and the NYSE - not necessarily in that order - does seem to increase the probability of a merger actually coming to fruition by several fold. At least, that's how the markets took it: the stocks off all three companies involved shot up 20-30% the first day alone, and most other airline stocks inexplicably took a mighty jump too. Meanwhile, the aviation message boards were freshly abuzz with speculation as to what form the merger would take, which aircraft would be phased out and which bases closed, what the name would be, how many employees would be axed, and what other unholy unions the merger mania might spawn. The mood among airline pilots was uniformly gloomy. One wag posted the following darkly humorous checklist:

Loosening of scope.....................Check
Catastrophic terrorist attack....Check
Recession.....................................Check
Bankruptcies...............................Check
Record pay cuts...........................Check
Termination of pensions...........Check
Elimination of work rules.........Check
Record high fuel..........................Check
Age 65...........................................Check
Mergers........................................Check
Second recession........................Check

Career destruction checklist complete to cabotage.
Standing by for the career change checklist.

When I accepted the job at NewCo I knew that RedCo being bought or merged was a distinct possibility. It's a risk I took. If the merger does go through, I could be out of a job. It's not that NewCo is going anywhere - both companies no doubt value having low-cost JungleBus feed - but that if RedCo furloughs pilots as a result of the merger, those pilots flow back to NewCo and displace the current pilots. The question is whether RedCo will really furlough, and if so how soon. The worst case scenario involves them parking a ton of DC9's towards the beginning of a speedy merger, resulting in massive furloughs and flowdowns to NewCo. In that case I could be out of a job in less than a year. The best case scenario involves early retirement payouts being offered to RedCo pilots as ALPA's price for blessing the merger, resulting in a mass exodus of everyone over 50 and few if any furloughs. Either scenario could happen, or something in between.

I'm still a little skeptical as to whether a merger is really going to happen. RedCo and WidgetCo doesn't make that much sense to me. Everybody points out that they have complimentary route structures, with a large European network for Widget, an extensive Asian presence for RedCo, and relatively little overlap in their domestic routes. Well, if there's so little overlap, how exactly will merging the companies save a ton of money? If merely offering customers an expansive worldwide network were the goal, couldn't the same thing be accomplished through a close marketing alliance like the one RedCo has with KLM? Everyone seems certain that the Bush DOJ will take a laissez-faire approach to this megamerger; certainly a more modest marketing alliance would survive scrutiny as well. One can make the argument that mergers will give the surviving airlines greater pricing power, but consider that capacity cuts have done nothing and will do nothing for the legacies' pricing power in a deregulated environment because there is always some low-cost carrier eager to swoop in and snatch any morsels of market share that fall from the legacies' table. With Open Skies rapidly approaching, that will soon hold true on transoceanic routes as well.

Merging the airlines will bring a host of problems. Take a look at the fleets, for example. The only overlap is the B757, plus some commonality between the DC9 and MD88/MD90. A merged airline would have the following fleet: DC9, MD88, MD90, B737, A320, B757, B767, A330, B777, B747 - and soon, the B787. Even Aeroflot has a less bastardized fleet! I think integrating the pilot groups is going to be just as messy as it has been at USAirways, since RedCo has a more senior pilot group than Widget. Even messier will be integrating RedCo's heavily unionized flight attendants, rampers, and customer service personnel with their non-union counterparts at Widget.

It's my opinion that this is not about making a healthy, prosperous long-term company and is all about creating wealth in the short term for a select few. It's already common knowledge that much of the pressure to merge has come from hedge fund managers and other private investment firms. With few other individual or institutional investors actively involved in corporate governance, they have the CEO and board of directors' ears. It helps that company executives themselves stand to profit handsomely from any transaction. The bottom line is that this may very well go through no matter how disastrous it will be over the long term. Think how much wealth was generated since the announcement, without anything really happening. Then again, maybe the whole thing will fall apart and the hedge fund managers will have to satisfy themselves with a few hundred million dollars in short-term profit taking.

In the meantime, I'm not worrying too much. There's not much I can do for now but try to get as much JungleBus time as I can and keep my eyes open for JungleBus-rated pilot opportunities here and overseas. If the worst-case scenario does happen, at least I got my ATP and a valuable type rating out of it. Till then, I'm just going to enjoy the flying and try to not listen to the gloomy rumor mill too much.